Fasten your seatbelts, warn experts
That's not to say stocks won't rise in '08. Just that the ride is likely to be bumpy, with the possibility of nasty sell-offs and confidence-building rallies along the way - just like this year, when stocks hit new highs but also suffered their first 10 percent drop in five years. Investors will again have to grapple with the economic fallout caused by the real estate bust, mortgage meltdown and resulting credit crunch.
So say five top Wall Street gurus who shared their hopes and fears for stocks in 2008 at USA TODAY's 12th annual Investment Roundtable. "A lot of questions have yet to be answered," says Liz Ann Sonders, chief investment strategist at Charles Schwab.
Will the economy slip into recession? Will the availability of credit continue to dry up, making it tough for consumers and businesses to access much-needed cash? Will housing prices keep falling? Will the Federal Reserve be able to script a happy ending to the financial crisis?
The angst resulting from these unknowns is likely to push stock prices down early in '08, setting the stage for a "significant recovery rally" later in the year, says Dan Chung, CEO and chief investment officer of the Alger Funds. "We could get double-digit plus gains."
But more bad news in the credit markets will likely cap gains to the low single-digits, counters Richard Bernstein, chief investment strategist at Merrill Lynch.
Stocks are likely to perk up once investors can better quantify the losses caused by the subprime mortgage meltdown, which has caused banks to write down tens of billions of dollars in losses, says Linda Duessel, equity market strategist at Federated Investors.
She notes that outside the troubled financial and housing sectors, the economy remains relatively robust. With unemployment at 4.7 percent, she expects consumers to keep shopping. Add in tame inflation and more interest rate cuts expected from the Fed, and the outlook remains positive. Says Duessel: "It's all good."
Tobias Levkovich, chief U.S. equity strategist at Citigroup, says big declines suffered by financials have created "opportunity." As for the broad market, gains will depend on whether the Fed can fend off recession.
WBJ Web Partners
Most Recent
Most Recent
0 Comments