Michael Kenneally is "ambivalent" toward stocks for the new year.
"We're going through a transition from the bear market to a bull market. But we aren't to the bull stage yet," he said. "I see a sideways market for the first half ... gaining strength in the second half."
His attitude toward stocks is partly based on a wait-and-see attitude on the economy, which he said is bruised but recovering. "We are making some progress. The economy will be better (this) year but not what you would normally expect coming out of a recession or from a bear market," he said.
Stocks will remain very volatile, at least through the first half, with volatility subsiding somewhat in the second half, said Mr. Kenneally. "That's when we will begin to get some traction for the bull market."
He expects the unemployment rate to drop to around 5.75% by the end of the year as corporations work to regain profitability. "Companies have been devoting most of their efforts to paying down debt and cutting costs," he said. "As demand starts to improve, profitability will improve and hiring will start to pick up."
Mr. Kenneally said stock selection will be more important than industry groups or sectors in 2003. That doesn't hold for the technology sector, which he said is in need of restructuring before it can show strong price gains. Technology companies "have too much capacity and not enough pricing power," he said.
But there will be plenty of other opportunities for skilled stock pickers. Mr. Kenneally said stocks most likely to do well are dividend-paying stocks with above-average dividend yields.
"There is considerable dispersion among individual stocks," he said. "There is more risk in owning one or two stocks, but there is also more reward."
He said there is no compelling reason to favor growth or value stocks. He expects small-cap companies to do "marginally better" than large-cap companies.
Chairman and chief investment officer
Banc of America Capital Management Inc., St. Louis
Assets under mgmt.: $230 billion
CPI : 2.4%
S&P 500: 1,010
3-month Treasury: 1.6%
10-year Treasury: 4.6%
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