Excerpts from current market commentary by analysts...
Excerpts from current market commentary by analysts at major and regional brokerages, editors of investment newsletters and portfolio managers
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Richard F. Hokenson, chief economist, Donaldson, Lufkin & Jenrette Securities, New York
There have always been two principal components to our 1997 outlook: a consumer-led recession and falling prices. The former is not yet a reality, although we are feeling more confident about it given three months of decline in current-dollar retail sales, falling prices for used cars, decelerating growth in consumer credit, etc.
The latter [falling prices] is increasingly a reality. In contrast to the nearly overwhelming consensus opinion that the seventh year of the current business recovery would show--must show--an increase in the rate of inflation, prices continue to surprise on the downside.
The lack of rising inflation has increased investor confidence that nothing bad can happen to stock prices because the traditional cycle-end signals of rising inflation and rising interest rates remain absent. Adjusted for inflation, however, interest rates are rising. The consumer-price-index-adjusted federal funds rate has increased by 1.35 percentage points since December 1996.
Rising real interest rates have [in the past] signaled [economic] downturns. What is different this time is that most of the increase in real rates is coming from falling inflation rather than rising nominal interest rates.
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