At year-end, the pundits get ready to deliver their predictions for the coming year. Here are some key observations from prominent commentators, plus a couple of issues to bear in mind as you plan your investment strategy for 2007
- U.S. Stocks have good earning prospects - at least over the next two quarters.
Over the last couple of months of 2006 we saw bouts of bullishness and bearishness, with opinions see-sawing in one direction and then in the other. If analysts agree on one thing it is that the market has been giving off very mixed signals. On the positive side, the Dow Jones Industrial Average (DJIA) has been soaring to new highs, but, on the down side, the Standard and Poor's 500 (S&P 500) has been moribund - scarcely moving in the last 7 years. Many Wall Street commentators think we'll see a continuance of this volatility, but many also belief that the outlook for stocks is good relative to returns on bonds and cash. The pessimists see an end to good times by summer when they predict that inflation will be the wild card.
- The economy will stay on track though the specter of inflation remains.
Overall the majority of analysts appear confident, at least for the first two quarters of 2007. Some analysts are suggesting that fourth quarter figures for real GDP in 2006 will be a healthy 3 percent or more. They see 2007 off to a good start based on strong stock performance, good job creation, and solid growth in the service sector of the economy. Some are concerned about the prospect of creeping inflation spurred by higher energy costs.
- There are no obviously good sector plays, and values can be found in both big-cap and small-cap stocks.
The days of picking growth categories seem to be over - for the moment. Analysts are focusing on individual corporate balance sheets and price-to-earnings ratios. If generalized comments can be made, the consensus is that the semi-conductor segment of the high tech sector will remain unpopular. And, some also expect corporations to increase technology spending to upgrade their infrastructure.
- The cool-off in the housing and manufacturing sectors will continue to slow the economy.
Opinions vary widely on the impact of the cooling off of both the housing market and the manufacturing sector. Some feel that an economy that has withstood war, natural disasters, spiraling energy costs and outsourcing - to name just a few hot issues - will be able to take the downturn in its stride.
- Overseas markets won't continue to trade at a discount to the U.S. market, but emerging markets will remain a source of interest to investors.
Foreign markets no longer will have the automatic advantage of trading at a discount - most are selling on par with the U.S., though some emerging markets still may have some pricing advantages. Emerging markets may also offer corporate growth opportunities (and investor profits) as a new generation of middle-class consumers begins to make their buying presence felt.
- Moves may be afoot to attempt to tame Sarbanes-Oxley (SOX).
Private sector committees - some with members that include Washington heavy hitters - are pushing to find ways to weaken SOX. Proponents believe that the increased regulation is hurting America's competitiveness. Opponents feel the move could result in shareholders, as well as state regulators, being denied the right to sue corporations for securities fraud.
There are no sure things in the stock market. A wise investor stays in the market for the long term, pays heed to experienced investment advisors, and is willing to question conventional wisdom once in a while.