New York market: Growth surge will have its downside
Sunday 07 February 1999
That's great news for the profit outlook, although it means the Federal Reserve is more likely to raise interest rates to head off inflation. Interest rates as measured by the yield on the 30-year Treasury bond slumped from 7.88 per cent at the end of 1994 to a low of 4.84 per cent on 2 October, 1998, and may not get that low again for a long time.
"We don't think rates are going to go a lot lower from here, so you do lose what has been an extremely important part of the bull market," said John Bartlett, fund manager for Commerce Funds.
That means investors should buy companies that do well in a growing economy, such as building-products maker Georgia-Pacific Group, Bethlehem Steel and chemical producer Union Carbide, said Anthony Dwyer, market strategist at Ladenburg Thalmann. Mr Bartlett's firm is buying small and medium-sized companies, which are cheaper than many big companies and not as risky, because they've lagged in the rally of the past four years.
Government reports showing a stronger than expected economy hit the market like a one-two punch last week. The Standard & Poor's 500 Index lost 3.1 per cent for the week and the Nasdaq plunged 5.3 per cent - the biggest drop in four months for both. The Dow Jones Industrial Average, which includes many economically sensitive companies, held up better, falling 0.6 per cent.
Investors snapped up metal, oil, chemical, paper, aluminum and aerospace stocks, all of which benefit from a growing economy. Computer companies and telecoms equipment makers posted the biggest drops. Microsoft lost 8.6 per cent, EMC sank 15 per cent, and Lucent dropped 11 per cent.
Some investors thought they would see interest rates drop this year because Asia, Russia and Latin America slumped in 1998. The consensus was that the slowdown would spill over to the US, prompting the Fed to follow up on its three 1998 rate cuts. That consensus is gone. "There's a recovery developing in Asia that is going to make our economy even stronger," said Mr Dwyer, who expects a 15 per cent drop in the Nasdaq composite in the next two months.
- 1 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 2 Optical illusion turns blue demon into brunette
- 3 German ethics council calls for incest between siblings to be legalised by Government
- 4 Alwaleed bin Talal: Saudi Prince to donate entire $32bn fortune to charity
- 5 Mystery sea creature - with 'fur' and 'a beak' - washes up on remote Russian beach, baffling scientists
The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
Jennifer Garner and Ben Affleck divorce: Memorable quotes from one of Hollywood's most scrutinised couples
German ethics council calls for incest between siblings to be legalised by Government
Alwaleed bin Talal: Saudi Prince to donate entire $32bn fortune to charity
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...