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To: The Perfect Hedge who wrote (6131)	12/18/1998 5:13:00 PM
From: SJS	Read Replies (1) \| Respond to of 14427

This is a reasonable summary (it's bearish, too...) __________________ A Look to 1999 from Briefing.com... It's that time again, when Briefing.com dusts off its crystal ball and tries to forecast what the market will do in the year ahead. For the first time in several years we're afraid that the negatives outnumber the positives. The question than becomes, do the negatives outweigh the positives? Let's take a look. Positives Accommodating Fed policy: Fed has cut rates three times in past few months and sits poised to do so again early next year... It rarely pays to fight the Fed. Low Inflation: What's allowing the Fed to be so aggressive in cutting interest rates is the lack of inflationary pressure... Low inflation equals higher market valuations. Liquidity: Due to this year's bear move there is plenty of money still left on the sidelines to fuel additional gains. A lot of new 401k money also likely to find its way into the stock market given low rate environment and lingering anxiety concerning overseas investment. Supply/Demand: As noted above demand for stocks looks to remain strong (especially in early 1999) and given the preponderance of stock buybacks, record M&A activity and slowdown in the IPO market, supply remains relatively short. Economy: Due in part to the aggressive action taken by the Fed, the domestic economy should avoid recession, though growth is apt to slow to the 2.0% area... As long as growth continues it's good news for stocks. DJUA: Not as weighty as a number of the other indicators, but the market rarely sells off when the DJUA is at or near its highs... Unless this rate sensitive index falls below the 300.00 level on a sustained basis, tough to make a strong case for a prolonged downturn in stock prices. Best Game in Town: Low yields and volatile and uncertain foreign markets continue to make the US stock market the best game in town... Next best competitor: the European bourses. Negatives Corporate Earnings: Earnings have looked sick for the past couple of quarters and Briefing.com sees little hope for material improvement until the second half of 1999, if then. Tough to forecast how severely late summer financial crisis will impact corporate America down the road... If nothing else earnings visibility is very murky. Trade: Exports to Asia slowed due to that region's crisis and now it looks like exports to the America's region will take a hit following the earlier financial meltdown. Considering that US exports to the America's dwarfs that to Asia, the news on this front isn't good. Will result in slower economic growth. Rising # of Layoffs: Total number of layoffs this year (to date) highest since early 90s... With earnings and the economy slowing down, job cuts to remain a major theme of corporate America in 1999. Reduced Consumption/Business Investment: Job cuts to result in erosion of consumer confidence and ultimately a slowdown in brisk pace of consumption... Similarly, with an eye to an eroding bottom line businesses likely to reduce investment... Again not good news for future economic growth. Political Uncertainty: Market's don't like uncertainty and that's the only word that can describe the domestic political scene as President Clinton faces impeachment and a trial in the Senate... Though at this stage it looks like he has the votes to avoid conviction, few gave much chance to a vote of impeachment after the November elections... Aside from possibly losing Clinton, looks almost certain that Treasury Secretary Rubin won't hang around much longer... Global political scene also not that great what with Yeltsin headed for the exits in Russia; Obuchi hanging on for dear life in Japan; and new unproven leadership in Germany and Brazil. Lack of Leadership: Aside from the technology sector, the market is starved for leadership as the financial, transportation and energy sectors are all experiencing difficulties. DJTA: DJTA never confirmed the recent new high set by the DJIA and that's not a good sign according to Dow Theory. Unspectacular Breadth: Weekly A/D line also failed to confirm market's new highs, suggesting narrow leadership and trouble ahead. Valuations: S&P 500 trading at near record p/e multiple at a time when corporate earnings are slowing down... Either earnings must accelerate by Q2, or stocks are in for a fall. State of the Consumer: Individual bankruptcies are at record highs, as is consumer debt burden... Meanwhile, savings rate at an all-time low... Add to the mix the likelihood of slowing income growth in 1999 and the picture isn't great... Again, consumption which has largely fuelled growth of the economy looks almost certain to slow. Deflation: The real wild card in the whole equation... So far deflationary pressures being seen in only a few pockets - most visibly in the commodities markets where oil and copper prices are at lows not seen in decades... Gold, steel and paper prices also under pressure as are a number of farm products... Lack of pricing power contributing to weak earnings growth and job cuts... If consumers and businesses pull in the reins to tight, could see asset deflation (with its negative wealth effect) as well. Drum Roll Please While there are a growing number of concerns, some quite serious, it is difficult to bet against the forces of the Fed and the market. At least not in normal economic times. But Briefing.com is going to climb out on a limb and suggest that these aren't normal times. Consequently, we aren't sure that Fed rate cuts will have desired long-term effect. With the weight of the evidence tipping ever so slightly to the downside, Briefing.com concludes that the S&P 500 will end 1999 between 5% and 10% below its 1998 close.