Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Manny Schiffres, the Executive Editor of Kiplinger's Personal Finance magazine to talk about market outlook for 2007.
Manny, the stock market was pretty good to people in 2006, performed better than most analysts expected. What does Kiplinger's see for 2007?
Manny Schiffres: Kevin we see more of the same in 2007, we think the stock market in the US will go up, probably between the high single digits and the low double digits. We are talking about anywhere from 7% to 12%, 13% maybe a little bit higher if everything falls into place.
Kevin McCormally: Okay, well what set things up for such a good year?
Manny Schiffres: Okay, first thing profits will continue to grow. Second, there is a good chance that the Federal Reserve Board in response to slow economic growth will cut short term interest rates which is very bullish for stocks. Third, we are in the third year of a presidential term, historically that has been very good for the stock market.
Kevin McCormally: What about Democratic control of Congress? Does that throw a fly into the ointment?
Manny Schiffres: It is not a real problem because the Republicans going to continue to control the White House. In the general scheme of things, gridlock is good; we will not have onerous legislation passed that would harm business.
Kevin McCormally: What about specific trends; big companies, small companies, international?
Manny Schiffres: Well we are think international is still the place to be; we expect foreign countries, on average, to grow faster than the US. Developing markets still look very strong. In the US, we think that large companies will do better than small companies; that is a trend that began to develop in the middle of 2006 and we think that will accelerate in the coming year.
Kevin McCormally: Okay finally Manny, what about fixed income investors, people who invest in bonds?
Manny Schiffres: It is a very difficult scenario for fixed0-income investors, you had the anomalous situation at the end of 2006 in which short-term interest rates actually yielded more than long-term interest rates.
Kevin McCormally: So what does that mean for investors?
Manny Schiffres: Well, it means that in the coming year we think that short-term interest rates will go down which means less income for investors in money market funds and short-term CD's. On the other hand, we think that long-term interest rates may actually go up, which means declines in the value of bonds and bond funds that invest in long-term funds.
Kevin McCormally: So what are investors supposed to do?
Manny Schiffres: Our advice would be to stay short, invest mostly in money market funds, very short-term CD's and treasuries early in the year. Then, as you see long-term interest rates go up, extend your maturities.
Kevin McCormally: Okay, thank you very much Manny.
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