this year, for the first time in my memory, the rate of growth of exports exceeded the rate of growth of imports by two percentage points. Gross exports running north of 13% of GDP. That's America's restructured companies tapping into all of the developing markets of the world. I think that will be a very important driver, particularly given America's leadership in technology, something we had allowed to slip in the '80s.
If you think corporate profits are going to grow little or not at all next year, you are underestimating the amount of productivity gains that American corporations are achieving. Unit costs are still going down for many large corporations in this country. I think the earnings have played an equal role to interest rates this year. If the budget comes under control and the Fed can then be a little accommodative to offset the fiscal drag, the market has a lot of juice in it.
MR. ARNOTT: Isn't a lot of that good news already discounted in a 30% rally?
MR. ABRAMS: No, because you have got earnings up a substantial portion of that. If you look at the change in bond yields, and add it to the change in earnings, you will get more than the 30% the market is up, a lot more.
Growth or value?
P&I: Let's go back to you Christian. Let me ask you: Which sectors of the market do you expect to have the best returns next year?
MR. WIGNALL: Growth stocks rather than cyclical stocks. This economic expansion will be in its sixth year next year. We are obviously past the peak of housing recoveries, the peak in car sales. All these traditional cyclical elements are very mature now. So I think that growth - led by new industries, long-term growth businesses, wherever they may be - will continue to lead the market.
MS. KETTERER: As a value investor, I have a completely different opinion. We are expecting good performance out of utility sectors, autos and basic industries such as chemicals and paper stocks, perhaps oils, and selected financials and selected health care.
Electric utilities have been beaten down thanks to competitive pressures. We are overweighting them significantly vs. the S&P. In autos, the market is discounting a steep decline in 1997 - in terms of basic industries, some of the paper stocks and selected financials.
One might point to the thrift industry right now, given we had congressional budget changes proposed that could make the savings and loans much more attractive as takeover candidates by banks and give that sector a boost.
MR. ARNOTT: I guess this is what makes the market. We should have Sarah's trading desk contact our trading desk. We are involved in active style management, which involves shifting between growth and value, between large and small stocks. And right now we do have a large-stock growth bias. Our largest 10 largest holdings are a roster of high-quality blue chips, which is very unusual for us. It's a very unusual bias - Coca-Cola, Exxon, Procter & Gamble, so on.
We favor higher beta stocks over lower beta. We favor stocks of companies that have shown recent success and recent momentum. And we have a distinct growth and quality bias; the norm for us would tend to be a bit of a value bias. We don't care for utilities. We don't care for high-yield-