PRINT
EMAIL
COMMENT
DEL.ICIO.US
DIGG
OUR PREMIUM CONTENT
The Kiplinger Agriculture Letter
The Kiplinger California Letter
Kiplinger's Biofuels Market Alert
Kiplinger's Retirement Report
SUBSCRIBER HELP
CURRENT LETTER
Big-Bank Woes
Begin to Spread
PREVIOUS ISSUES
2007 will be another strong year for stocks, but not as strong as last year. We expect a 10% gain in the S&P 500 index, compared with 14% in 2006. That will take the index above its record high of 1527 set in March 2000.
A 2% dividend will bring total returns to 12% in 2007, vs. 16% in 2006. The Dow Jones Industrial Average, which hit a new high in 2006, will also continue to set records and climb about 13% to surpass 14,000.
Behind the stock rise will be slow but solid economic growth. Inflation will be tame, consumers will keep spending and short-term interest rates should hold steady or decline. Other factors spurring stocks include a high level of mergers and acquisitions and a hot market for initial public offerings in a wide range of sectors, from technology and telecommunications to retail and financial services. U.S. companies, which are sitting on $2.4 trillion in cash, will also fuel economic growth as they spend more on capital improvements, helping makers of everything from cement to software.
After four years of impressive stock gains, many investors will put their money into more-defensive companies, such as makers of household goods like detergent, shampoo and toothpaste. These manufacturers will do well despite the slowdown because consumer demand for these items won't fluctuate much. Look for companies such as Colgate-Palmolive and Procter & Gamble to stay strong in 2007. Health care providers and alcohol and tobacco producers also fit into this category, as well as Johnson & Johnson, Anheuser-Busch and Altria.
Large-company stocks will regain favor. For the past several years, as economies worldwide expanded, investors eager for greater returns snatched up relatively risky investments, from emerging market funds to junk bonds to commodities. Investors also preferred shares of small and midsize companies. The result? Stocks of big blue-chip companies lagged, even as their profits soared, suggesting the behemoths still have lots of room for appreciation.
Buyers will likely focus on large, financially healthy companies with strong cash positions that typically pay dividends. 3M, General Electric and Microsoft fit the bill. In terms of mutual funds, Marsico Growth, T. Rowe Price Growth Stock and Vanguard Primecap Core are good bets.
Don't forget foreign stocks. About a quarter of stock portfolios should be invested abroad to take advantage of higher growth rates in many developing countries. A few funds that'll tap into that global growth are Artisan International, Dodge & Cox International Stock and Oakmark International. Another angle for investors is to buy individual shares of multinational firms that get a good chunk of their revenue from overseas operations, such as insurer American International Group and beverage maker Coca-Cola.
Keep an eye out for wild cards that could weaken a good hand—shocks to oil supplies, possibly due to terror attacks, wars or disputes with OPEC producers such as Venezuela, for example. Such events could trigger higher energy prices and an unexpected spurt in inflation, prompting the Federal Reserve to raise interest rates. Or a worsening housing slump could sap growth as consumers realize the biggest asset they own—their homes—are worth less and decide to spend less as a consequence.
Bond investors should be thinking about buying short-term maturities. Why? Foreign demand for benchmark 10-year Treasuries will probably taper off in 2007 as buyers look to better returns overseas. That'll siphon off funds flowing into Treasuries, pushing prices down and yields up past 5% early in 2007. Also favoring short-term bonds: The Federal Reserve will start cutting interest rates about halfway through the year, which will give a boost to these bond prices. For flexibility, investors may also consider keeping some money in short-term certificates of deposit and high-yielding money market accounts: Both types are offering attractive returns (in many cases, higher than long-term bonds), and both make it easy to switch funds in and out when rates change.
For weekly updates on topics to improve your business decisionmaking, click here.
E-Mail Article
Print Article
Reprint Article
|
|
|
|
|
|
|
|
