The Cure Forwhat Ails You

The economy hasn't fully recovered, but vital signs are improving. Position yourselfto take advantage of the rebound.

new markets,” he says.

For employees, the economists suggest staying put for the time being. “If you have a decent job, don’t walk away from it,” says Conrad. “Be prepared for benefit cuts, especially in health insurance.” And with insurance premiums on the rise, don’t be surprised if your company asks you for a larger contribution to your health plan.

Job hunters might do well to start with companies owned by African Americans. Each quarter, Boston conducts the ING Gazelle Index, a national survey given to 350 CEOs of the nation’s fastest growing black-owned companies. (www .inggazelleindex.com). Sponsored by ING Financial Services, the survey results indicate that while optimism has increased among both African American business owners and CEOs of the nation’s largest corporations, the former has increased sharply. Recently, 48.3% of Gazelle CEOs said they intend to increase hiring in the near future.

If hiring picks up, additional workers will have money for spending, saving, and repaying debts. Such a sequence could build confidence and encourage investing. This economic expansion has been more tortoise than hare.

The Cycle Turns to Cyclical Stocks
If the economy is on track for a continued expansion, what are the investment implications? Christopher Sheldon, director of investment strategy for Mellon’s Private Wealth Management Group in Boston, offers these insights:

Stick with stocks. “There is more opportunity in equities than in bonds, with interest rates as low as they a
re now,” he says. “If interest rates move up from their current low levels, bonds will lose value. Stocks can move higher if profits improve, and the market may be underestimating the profit growth we’ll see in 2004.” Therefore, you might want to tilt your portfolio a bit toward stocks and away from bonds.

Seek cyclical stocks. Tech and financial stocks did very well in 2003, so they may not have as much potential as other issues. Cyclicals are stocks that tend to rise quickly during an upturn in the economy and fall quickly during a downturn, such as housing, steel, automobiles, and paper.
Although Sheldon declines to name specific sectors, Wall Street’s list of cyclical or economically sensitive companies usually includes industrial equipment, chemicals, cement, paper, metals, and minerals.

Stay short in bonds. “The yields on money market funds and short-term bonds are so low that it pays to go a little longer for higher yields,” says Sheldon. “However, long-term bonds will lose more value if interest rates rise. Therefore, we think the ‘sweet spot’ in the bond market is intermediate-term-bonds with maturities from five to seven years.”
Sheldon says that Treasury bonds may be overvalued now so he prefers corporate bonds and mortgage-backed securities.

Emphasize emerging markets. Among international investments, Sheldon is modestly bullish on Japan. “Even slow growth there will be better than what we’ve seen in the past 15 years,” he says. “I think the fastest growth will be in emerging markets, particularly in parts of Asia. You may want to have a portion of your portfolio in such stocks.”

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