While generally upbeat about investment prospects, Hispanic money managers nonetheless caution against the “irrational exuberance” of years past.
By Mark Egan
HISPANIC BUSINESS® magazine
After two years most investors would rather forget, money managers are optimistic that the worst is over. The S&P500 index fell nearly 10 percent and 12 percent in 2000 and 2001, respectively – the first back-to-back declines since the early 1970s. But despite that dismal backdrop – to say nothing of the current recession and the war against terrorism – money managers forecast good times ahead, predicting a rising stock market as the economy shakes off its lethargy. In contrast to the heady Internet bullmarket days when the sky was the limit, however, investment advisors are urging stock market investors to have realistic expectations. Julio Gonzalez, a vice-president of Georgia-based Miramar Securities and Hispanic-owned money management firm Diaz- Verson Capital, sees the Dow Jones Industrial Average at 12,000 and the S&P500 at 1,400 by year’s end. Though many investors pulled money out of the stock market during the past two years, Mr. Gonzalez expects that trend will reverse in 2002. “Investors are anxious to jump back into the market,” says Mr. Gonzalez, who aims for annual gains of 12–15 percent. “We think there could be a big boost to this market.” In fact, Mr. Gonzalez is almost unwavering in his optimism. “The key thing to keep in mind is that this stock market has withstood the Cuban missile crisis, the resignation of President Nixon, the assassination of President Kennedy, the oil embargo, depressions and recessions. It has withstood everything that has ever hit this country and has always gone higher.” Indeed, the market proved that point again last year. After September 11, stocks stumbled to three-year lows, heightening fears of a protracted bear market. But the uncertainty was short-lived, as stocks took just one month to return to pre–September 11 levels. And if optimism is the flavor of the day, the statistics support that view. The stock market has not declined for three consecutive years since the Great Depression, and during the first year of a recovery, stock prices have jumped an average of 38 percent. The S&P500 fell 17 percent and almost 30 percent, respectively, in 1973 and 1974 as a result of the oil crisis and Richard Nixon’s resignation. But in 1975 and 1976, stocks jumped almost 32 percent and 19 percent. Even if gains like those do materialize again, investors should not expect all stocks to rise. Mr. Gonzalez believes that means buying companies with solid earnings prospects. Kroger (NYSE: KR), Walgreen (NYSE: WAG), and Wal-Mart (NYSE: WMT) are among the retailers he likes. He also expects gains from heath-care company Johnson & Johnson (NYSE: JNJ), while among financials he expects that American Express (NYSE: AXP) and the Bank of New York (NYSE: BK) will benefit from higher interest rates in the coming months. Many experts say U.S. stocks are still overvalued, given mixed corporate earnings results. And while most expect the economy to shrug off the recession this year, many economists expect a patchy recovery with some key indicators like unemployment getting worse before they get better.
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