The outlook for '98: Asia puts the West to the test

The party's over on Wall Street - again

"It was fun, but the party is over for US stocks. It's time to expect a more sober gathering on Wall Street." You heard that message from the forecasters just a year ago, of course. They were wrong then. But here they are again, saying exactly the same.

Money managers with hundreds of billions of dollars at stake say the major US stock indexes will gain only 7 to 8 per cent next year, after three straight years of 20 and 30 per cent gains for the benchmark Standard & Poor's 500 Index. Even the boldest predict returns of no more than 12 per cent.

Some predict losses of up to 15 per ent for the overall market. Prudential Securities analyst Ralph Acampora said three-quarters of the companies listed on the New York stock exchange will see their shares fall 20 per cent in the coming year.

History backs up conservative forecasters. This century, the Dow Jones Industrial Average, another standard indicator, has never risen more than 10 per cent in four consecutive years, and it has already done that for three.

"We're continuing in the bull market, but it's not the bull market we knew,'' said Raymond Mason, chairman and chief executive of Legg Mason in Baltimore, which oversees $54bn (pounds 31bn) of investments.

The steady-growth, low-inflation economy that drove the market for three years is still with us, but investors won't bet that the good times will last into a fourth year - not with Asia teetering on the financial brink and US earnings expected to increase less quickly.

"The market is going to have to adjust to slower profit growth," said Thomas Madden, chief investment officer at Federated Investors in Pittsburgh, which oversees $135bn in assets.

If the market does slow down, the best-performing money managers may be those who concentrate on a few stock picks, rather than trying to mimic broader stock indexes.

Frederick Taylor, chief investment officer of US Trust Co, which oversees $58bn in investments, says his favourite stocks in this environment include Exxon Corp, because of its cost-cutting, and Michigan-based Lear Corp, the world's largest maker of vehicle seats, which is taking advantage of a growing car market outside the US by buying auto seat makers abroad.

Philip Morris will be a winner in 1998, says Robert Sanborn, who oversees more than $6bn at the Oakmark Fund in Chicago. The stock returned 19 per cent in the past year, below the S&P 500's gain, while investors awaited congressional approval of a $368.5bn settlement of health-related tobacco litigation. The settlement would be paid for by raising cigarette prices which are unlikely to significantly affect sales, Mr Sanborn said.

William H Miller III, president of Legg Mason Fund Advisor, which manages $6.5bn in stocks, said he may buy "disasters" such as Oracle, which is down about 23 per cent for the year, and Oxford Health Plans, down as much as 83 per cent. "We think these are very fruitful places to look,'' he said.

Merrill Lynch, the largest US securities firm in terms of the number of brokers, recommends airline, cable TV and insurance stocks. Those companies, which borrow a lot of money, should benefit from low interest rates.

Richard McCabe, Merrill's chief market analyst, said that the market could reach new record highs in January and February next year, then fall as much as 25 per cent. A new three-year bull market cycle will start in late 1998 or 1999, he said.

Even the optimistic Abby Joseph Cohen, co-head of the investment policy committee at Goldman Sachs, lowered her outlook from "extremely bullish" a year ago to "just bullish". In the early 1990s, Ms Cohen said, stocks were 30 to 40 per cent undervalued. Now, "much of that valuation gap has closed". A strong underlying economy should keep stock prices rising along with profits in 1998, with the Dow Jones industrials rising 9 per cent and the S&P 500 up 11 per cent, she said.

Ms Cohen's predictions have been on the mark, but she knows she should watch her back. Recently, she was introduced as "The Joan of Arc of Wall Street". In reply, she said: "For Joan of Arc, it didn't end so well."

Start your day with The Independent, sign up for daily news emails
Property
pets
Arts and Entertainment
tvGame of Thrones season 5 ep 4, review - WARNING: contains major spoiliers!
Arts and Entertainment
tvThe C-Word, TV review
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Sport
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
News
Tiger Woods and Lindsey Vonn are breaking up after nearly three years together
peopleFormer couple announce separation in posts on their websites
Sport
football
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
Arts and Entertainment
Haunted looks: Matthew Macfadyen and Timothy Spall star in ‘The Enfield Haunting’
tvThe Enfield Haunting, TV review
News
news
News
The Mattehorn stands reflected in Leisee lake near Sunnegga station on June 30, 2013 near Zermatt, Switzerland
news
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living