It’s been a long, strange and profitable journey for the 10-year-old bull market, especially in the latter half of the ’90s.
From 1995 through 1998, the U.S. stock market posted stratospheric returns. The Standard & Poor’s 500 index rose 37.5%, 23.0%, 33.4% and 28.6% in those four years, for a 30.5% compound annual return. By contrast, the long-term return on U.S. stocks dating back to 1926 is about 11% per year.
In 1999, however, investors experienced a more “normal” year, one closer to the long-term trend. Inflation advanced a notch, and interest rates moved up 50 basis points as the Federal Reserve raised short-term interest rates twice in the year, dampening stock market returns. By the end of October, the S&P 500 was up only about 12% for the year. Although a fourth-quarter rally might lift stocks, at this writing it seems as if the broader market will wind up with a sub-par performance-at least in comparison to recent years.
What’s in store for 2000? A scary beginning, most likely, as investors wait to see how successfully companies and governments, dependent on computers, coped with the Y2K bug. From that point on, though, black enterprise’s annual roundup of financial professionals found plenty to cheer in the investment scene during the year to come. Returns on stocks might not climb back north of 20%, but they could well post a decent, double-digit return.
GROWTH, BUT AT A SLOWER PACE
Some market experts say the economy will expand next year, but at a slower rate than in 1999. “The pace seen at the start of 1999 is too fast to be sustained,” asserts David Blitzer, S&P’s chief economist. He expects the economy could slow down early in 2000 but grow at a healthy 3% rate in the second half of the year.
Inflation, as expressed by the Consumer Price Index (CPI), is expected to rise about 2.2% next year, up a tad from the 1.6% rate of 1998 but still well below the level of most recent years, says Blitzer. He adds that interest rates are not expected to move much higher than current levels while corporate profits could edge up about 4%. Altogether, such a scenario would indicate a solid if unspectacular year in the financial markets.
Not every seer expects the world to move on such an even keel in 2000, however. For example, some experts say Federal Reserve Chairman Alan Greenspan could rain on the parade by raising short-term interest rates in order to contain inflation. The Fed remains committed to beating down the slightest hint of inflation, even when the evidence from economic reports like the CPI has been less than convincing.
“I’m not forecasting a recession, but I think economic growth will barely stay positive,” says Don Hays of Hays Market Focus Advisory Group, Nashville, Tennessee. “The United States has held up the rest of the world for a while, but that can’t go on forever. In 2000, I expect problems from other countries to spill over to the U.S., slowing down our economy.”