Forecast ’99

What are the best financial moves to make this year? Here's a look at key investments to build wealth while buffering market bumps.

year ago, says Shote, it was hard to find good value in the stock market. Now, with prices down, the best companies in the world are on sale. "There’s no reason to buy the second best," he says. "Take the easy path and buy great companies whose prices have fallen. The same is true for mutual funds: some funds with outstanding long-term records are down by as much as 25%. Buy them today, while they’re cheap."

Cheryl Creuzot, an attorney and certified financial planner who is president of Financial Strategies Group in Houston, agrees that now is probably the time to buy stocks. "The domestic economy remains strong so there’s no reason for panic, especially if you’re investing for the long term. Investors who went into stocks after the 1987 crash have done very well." Indeed, every sharp market drop in recent years has been followed by a gradual rebound (see chart, "Riding the Bull After a Bear Run").

However, don’t expect a reprise of the 1995-97 bonanza. "I expect stock market returns to move down to their historical average," says Peace. "Stocks may return 10%-14% in 1999, rather than the 20%-30% returns we’ve been seeing. There’s some value out there now, after the recent decline, but extraordinary returns shouldn’t be anticipated."

Robert M. Cotton, vice president of investments with Prudential Securities in Chicago, is also positive about the stock market this year. "Unlike secured bonds or tangible assets, which have a tendency to outperform during periods when our economy experiences extreme recession or inflation, common stocks have a tendency to outperform during periods of economic normalcy. As I see it, investors should focus on sectors that have been sold off unreasonably hard. Oil services, financial services, real estate investment trusts (REITs), biotechnology, capital goods and some technology issues are among such sectors."

Large-cap stocks. The market surge of the past few years has been spearheaded by the largest companies, which are favored by institutions and foreign investors. For the most part, experts see this trend continuing. "Why buy pie in the sky?" asks Shote. "If great companies such as Citigroup are down by 40%, there’s no need to buy anything else. Even if it takes two years for the stock to come back, investors will still earn 70%," he explains.

"In such troubled times I think investors should look first at high-quality companies," says Fields. "Large caps may do better because they’re more liquid: investors can trade them easily without distorting share prices. With some small companies, one big trade can drive down the price."

Large caps may hold center stage, but the spotlight may shift away from multinationals. "Asia will be dumping goods around the world, which will hurt U.S. manufacturers, especially exporters," says Fields. "And, weaknesses in Brazil will likely spread throughout Latin America, our major export market. I think investors should look for companies with little foreign exposure," he adds.

Fields cites, as an example, the pharmaceutical industry,

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