Magazine article Medical Economics

Some Sour Notes in the Sweet Song of Growth

Magazine article Medical Economics

Some Sour Notes in the Sweet Song of Growth

Article excerpt

Some money managers foresee a new investor romance with growth stocks (see accompanying article). Nonsense, say cynics.

With the Dow Jones Industrial Average near its all-time high, the naysayers believe, a broad market decline is likely to have an impact even on growth stocks with the strongest upside potential.

In fact, while Chuck Zender raves about growth stocks, his money-management firm of Leuthold and Anderson is recommending that short-term investors keep no more than 30 percent of their assets in U.S. equities of any kind. "Rising interest rates and higher inflation are the most serious threats to the market's immediate future," he says.

Given his cautious outlook, Zender suggests steering clear of the traditional growth stocks whose price-earnings ratios are notably higher than that of the market. "In a market drop, those issues are unlikely to give you much downside protection," he adds.

Dan Sullivan, editor of The Chartist, an investment newsletter in Seal Beach, Calif., is telling readers not to get overly enthusiastic about the current cheerleading for growth stocks. "They can be wonderful on the way up, but devastating on the way down," he says. "The last thing you want to do is to hold growth stocks in a bear market, and in my opinion we're in one."

The current yield on the Dow Jones industrial average remains close to its lowest level ever, he says, further suggesting a sharp downturn in the offing. "Moreover, yields on conservative investments, such as Treasury bills and notes, are offering competition to the dividend yield on equities. …

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