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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Amelia Carhartt who wrote (252)	6/23/1998 3:44:00 PM
From: Henry Volquardsen	Read Replies (3) \| Respond to of 3536

Susan, Yes the bond and equity markets are related but they frequently respond to different rhythms. Currently we have a stock market that responds directly to lower interest rates but that is not always the case. I remember when I first started investing it was considered pretty conventional wisdom that the stock market would move in the opposite direction of the bond market. The thinking was that in good economic conditions equity prices would rise while rising interest rates would depress bonds. The opposite would happen during recessions. It is only over the last decade or so that economic conditions have aligned to create a situation where they move in tandem. I could easily see a return of a global recessionary environment that would depress equity markets while bonds continued in a bull market. The flags I would watch for the two markets would be as follows. For bonds I would keep a very close eye on inflation statistics and anything that would feed inflation ie petroleum prices, labor demand etc. For equities I think the biggest question is earnings momentum. The second question for equities is quite simply if we will continue to see the extraordinary flow of funds that continue to move into the equity markets. As far as my gut feeling over the next 90 days it as follows. I feel fairly comfortable on the short and long term outlook for the bullish scenario. I find it difficult to construct a scenario that would move interest rates back above 5.80% during your time frame. If long bonds I would stay long. If not in bonds I would not rush in today to buy but look for about a one point dip to buy. In equities I have to preface my comment by saying that I am not a short term trader. I generally look for equities to hold for about 5 years. Also I never buy the market as a whole, I always look at individual equities on their own merit. With that said I have a gut feeling the stock market is getting set to make another move higher. A lot of money has been piling up looking to get invested. We have been scaring ourselves pretty silly for about three months and I thing people are getting bored with that story. Also I don't believe Asia will meet our worst fears (I am an optimist by nature). The action in techs the last two days has been very interesting. So all in all I have a gut feeling we are about to challenge the highs again. Just a hunch. Henry