"Stocks are going up, so who am I to stand in the way?" said Gary Shilling, president of A Gary Shilling in New Jersey. "Human beings play until they lose. They don't quit as winners."
Demand for stocks is insatiable. The Investment Company Institute reported last week that an estimated net $19.5bn went into stock funds in February, exceeding the net $14.6bn invested in January.
The stock market had a tidy advance last week. The Dow Jones Industrial Average rose 33.13 points, or 0.4 per cent, to 8602.52 for the week, after setting an all-time high of 8675.75 on Wednesday. For the year, the 30- stock average is up 8.8 per cent.
Any pessimism sparked by last week's trio of warnings on profits from Intel, Motorola and Compaq Computer evaporated quickly. Maybe too quickly, said Mr Shilling. Investors, he said, underestimate the impact on US corporate profits from the economic slowdown in Asia, which is starting to flood the US with cheap imports, crimping overseas demand for US.goods.
One company whose earnings bear watching is Nike. On 24 February, the shoe company warned that third-quarter earnings would be well below expectations as retailers both in Asia and the US ordered fewer shoes.
"Corporate earnings growth will diminish sharply as the year goes on, reflecting pressure on [profit] margins," said Peter Anderson, chief investment officer at American Express Financial Advisers.
He suggests that investors cut their stock holdings and raise cash ahead of what he forecasts to be a 15 per cent to 20 per cent tumble in share prices this summer. The rout will be set off by rising interest rates and further pressure on corporate profits. He predicted that the yield on the benchmark 30-year bond will rise to about 7.35 per cent.
The short-term outlook on bonds is quite different. David Berry, bond manaager at Lincoln National, bought Treasuries last week before the government reported a jump in new jobs and robust retail sales. It proved a smart choice. Since 3 March, 30-year bonds offered a total return in 10 days of 2.8 per cent. Yields fell to 5.89 per cent from a 12-week high of 6.07 per cent.
Mr Berry is profiting from the conviction that inflation won't quicken soon, even if the economy keeps growing at a brisk pace. "Low inflation is going to win out," he said.Reuse content