Leading money managers expect strong economic growth to continue in 1995, with gross domestic product growing by about 3%, and inflation to remain moderate.
However, they generally expect only modest returns from the stock market, ranging from 8% to 12%, with the potential for unpleasant surprises. In particular, further bad news from derivatives could hurt investment returns.
These are the consensus views of six top investment professionals gathered for Pensions & Investments' annual market outlook roundtable, held Nov. 30, in New York.
The participants were:
Gary L. Bergstrom, president, Acadian Asset Management Inc., Boston;
Mark Mallon, president, Federated Investment Counseling, Pittsburgh;
Michael L. Green, president, EverGreen Capital Management Inc., Omaha, Neb.;
Mark Stumpp, managing director and chief investment officer, Prudential Diversified Investment Strategies, Short Hills, N.J.;
Elizabeth Bramwell, president and chief executive officer, Bramwell Capital Management Inc., New York; and
Thomas M. O'Neill, president and chief executive officer, Aeltus Investment Management Inc., Hartford, Conn.
The edited transcript of the roundtable begins below:
Elizabeth, what is your prognosis for the economy for 1995?
ELIZABETH BRAMWELL: I think the economy is going to be stronger than generally anticipated. It's very hard for the Federal Reserve to really slow down the economy that much. There are more people who are employed. We've been raising capital for the last three to four years in the equity markets and it's being put to work in research, development, capital spending, market development; and it's creating jobs.
Exports are strong. I think they'll continue. I don't think we really analyzed the specific positive impacts of GATT going through, but it's a worldwide tax cut in the long run.
I think that job creation will continue to be strong, but there has been deferred hiring because of business' concern about the impact of cost of health care reform under the Clintons and the regulations that go with it. So I would anticipate job growth should be pretty good even going forward, certainly going into the first half.
P&I: How about your GDP growth rate?
MS. BRAMWELL: I think the fourth quarter will be stronger than generally anticipated. Next year, I would think the GDP will continue to grow 3% or perhaps better. That's an average number; the first half may be stronger.
P&I: How about inflation?
MS. BRAMWELL: Well, I think inflation will be around 3.5%; it will be up from here. I think industrial prices are going to go through the system; a lot of long-term supply contracts are running out at the end of this year, and prices will rise. Generally, I think we're in a synchronized global recovery, with Europe turning more quickly perhaps than not, and generally expected with the U.S. growing around the 3% area, and at least LDCs and so forth growing at maybe two to three times that rate.
MICHAEL GREEN: I'm a little bit more moderate than Elizabeth is on inflation because of what I see in productivity. I think productivity is up substantially. I think production per labor hour is better than it has been. So inflation may be somewhere around 3%, maybe a little less.
I think that on the consumer confidence level, again, employment is up good, and so I think people are beginning to let go of the dollars. The retail sector seems to be echoing that around this Christmas. Things are a lot better than the last two years.