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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Internet Jones who wrote (81024)	1/29/2000 5:22:00 AM
From: puborectalis	Respond to of 120523

By Elaine Garzarelli, CBS MarketWatch Last Update: 4:40 PM ET Jan 28, 2000 Commentary Listen to recent interview NEW YORK (CBS.MW) -- A strong gross domestic product report along with a strong rise in the employment cost index today added to the market's fears of strong growth and further Fed tightenings. For the final quarter of last year, the U.S. economy grew a larger than expected 5.8 percent (economists expected 5 percent). The GDP deflator (an inflation measure) rose 2 percent -- also higher than expected. Consumer spending (two-thirds of the economy) rose at a 5.3 percent annual rate in the fourth quarter as the stock market surged. See full story. The savings rate for 1999, however, hit the lowest level ever at 2.4 percent as consumers continue to spend. Although market participants are already anticipating Fed rate hikes, the fear now is that many more hikes may be necessary than were previously anticipated. And, those hikes may be greater than 25 basis points. We expect to see the Fed raise rates. A leading inflation index we look at (and we believe is one of Greenspan's favorites) -- the Foundation for International Business and Economic Research (FIBER) leading index of inflation -- continues to rise. The latest reading in December hit its twelfth consecutive monthly increase. Even with further rate hikes imminent, we remain invested in the stock market as we believe the hikes will be for the good of the economy and help the economy and stock market stay healthy over the long term. Interest rate analysis Over the last two weeks, the yield curve has inverted with the 10-year yield (currently at 6.69 percent) above the 30-year yield (6.52 percent). Historically, an inverted yield curve has coincided with the end of a bear market in bonds, and usually a slowdown in economic growth in the months ahead. In this case, however, we believe, the inversion reflects supply and demand imbalances and the recent decline in long term yields is due to expectation that bond supply over the next few years will be the lowest in decades because of the Federal surplus. In fact, the Treasury Department announced last summer that it would decrease the frequency of its 30-year bond auctions to two times a year from three and they announced a couple of weeks ago they will begin to buy back some old Treasury securities early this year. As far as the intermediate curve, supply continues to be abundant with corporate issuance continuing. We recommend keeping long-term bonds as part of one's asset allocation.