Lower than expected gains in corporate profits in 1997 will spur the first 10% correction in the 1990s for the stock market, according to Robert Doll, executive vice president and director of equity investments at Oppenheimer Funds Inc.
Bonds will outperform stocks for the first time since 1993, but not without a frustrating year for investors, where the long bond rate will bounce between 6% and 7%, he said.
Likewise, foreign stock markets will outperform the U.S. market in 1997 for the first time since 1993, as earnings momentum is picking up overseas, especially in Europe.
While the economy will complete its seventh straight year without a recession, stocks will suffer as a result of single-digit corporate profit growth "at best," he predicted.
The stock market has gone seven years without a 10% correction. The market, on average, corrects about every 30 months.
The correction will help the decade live up to his characterization as the 'Normal '90s.'
"The last two years notwithstanding, we continue to believe that when we look back at this decade, annual rates of return for the stock market will prove to be at the historical average or 'normal' - around 10%. If you take the Dow at the start of the decade and compound its annual returns, you get to 7700 by the year 2000. So far this decade, the rate of return on stocks overall has been higher than 10%, but only by a small margin," he pointed out.
