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Goldilocks finally choked on her porridge. For years, the U.S. has enjoyed a "not too hot, not too cold" economy, which sent the stock market through the roof. The Standard & Poor’s 500 Index, which historically has gained about 10% per year, returned 37.53% in 1995, 22.95% in 1996 and 33.35% in 1997, the best three-year streak on record. The boom continued well into 1998 and Goldilocks seemed to be sitting pretty.
Then foreign troubles threatened to infect the U.S. and our long bull market took a strong bearish turn. In the third quarter of 1998, the S&P 500 lost 9.93%, dropping the nine-month return to a paltry 4.51%. Smaller stocks suffered even more. Although things seemed to settle down in the fourth quarter, by no means are Wall Street’s titans certain that the worst is over.
After a volatile ’98, what could be in store for 1999? Hard times, perhaps, in the domestic and worldwide economies. But investors won’t necessarily get sick just because the economy sneezes. A roundup of financial professionals consulted by BLACK ENTERPRISE formed the consensus that you should continue stocking up your portfolio, looking beyond the tunnel to the light on the other side.
Here’s the rundown:
Economy. "I’m expecting a global recession in 1999," says Percy Bolton, an investment management consultant and certified financial planner in Los Angeles who has been recognized by Worth magazine as one of America’s best financial advisors. "Problems in Russia, Asia, and Latin America likely will spill over to the U.S. and Europe. More hedge fund problems may emerge, making lenders cautious, and that could lead to a credit crunch here."
Richard Peace, a certified financial planner with Advantage Capital in Colorado Springs, Colorado, doesn’t expect a recession, but he does see a slowing economy. "External problems around the world will be felt here," he says. "It’s all interconnected." As Gayle P. McEvilley, a financial planner with Rinehart & Associates in Charlotte, North Carolina, puts it, "When foreigners stop buying our products, U.S. companies stop manufacturing. Already, you can read in the newspapers about layoffs and cutbacks."
Inflation and interest rates. A slowing economy will make it easier for the Federal Reserve to fight inflation. Low inflation, in turn, means low interest rates. "Interest rates probably will stay flat or decline," says stock broker David Fields of Woburn, Massachusetts, who’s affiliated with National Securities Corp. in Seattle. So don’t expect to see plump yields from bank accounts or money market funds any time in the near future.
Femi Shote, a financial planner with the New England Financial Group in Waltham, Massachusetts, advises investors to keep an eye on Alan Greenspan, chairman of the Federal Reserve Bank. "The Fed is the most powerful institution in the world, and it’s indicating it wants to lower interest rates to stimulate the economy. That means 1999 will be a great opportunity to make money, so why fight the Fed?"
Equity market outlook. A