Newspaper article THE JOURNAL RECORD

Can Investors Profit from Economic Recovery?

Newspaper article THE JOURNAL RECORD

Can Investors Profit from Economic Recovery?

Article excerpt

After climbing to record highs in the first half of 1991, what can the stock market do to top that performance in the last six months of the year? That's the question confronting Wall Street analysts as they issue midyear appraisals of the economic and interest- rate outlooks, as well as forecasts for stocks through yearend. If many of the pundits are right, the economy will show more and more signs of recovery from the recession as the second half gets rolling. The common view at the moment is that business conditions seem to have bottomed out around May, some 10 months after the recession officially took hold. The problem for investors is that stock prices appear already to have anticipated a substantial improvement in growth and corporate profits. So even if the economy delivers on the promise of recovery, many analysts agree it is no sure bet that the stock market will continue to advance in the months ahead. "The market has come a long way and discounted a great many good things," said Greg Smith at Prudential Securities Inc. So while Smith sees "some extremely rewarding opportunities" over the long term, he describes himself as "more cautious on the outlook for both stocks and bonds over the next couple of months." Fears of a possible letdown for stocks have focused in recent weeks on rising long-term interest rates in the bond market. At around 8.5 percent, vs. slightly less than 8 percent early this year, "long-term interest rates have risen to a point where they are slowly beginning to compete with stocks," said Rao Chala- sani, analyst at Kemper Securities Group in Chicago. Chalasani and other observers say there are also signs that short-term interest rates, which had been in a steep decline until recently, may now be turning upward. One worry is that rising rates will slow or stall the progress of the economy just as it begins recovering, thus reducing the chances that corporate profits will live up to stock owners' hopes. …
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