'Slightly optimistic" is as high as Ted Truscott will go on the scale of market bullishness in 2003. And that's only if the United States doesn't go to war.
"The combination of lower interest rates, improved earnings by wringing out excess costs built up in the '90s, and a growing economy should pave the way for better (stock) returns," Mr. Truscott said.
By better, Mr. Truscott means modest S&P 500 returns, with corporate earnings remaining the key to market growth this year. Earnings will be driven by moderate revenue growth combined with the positive effects of cost cuts from the last two years. Mr. Truscott said he doesn't expect much p/e expansion as the market was not terribly cheap at the beginning of the year and improved earnings prospects for 2003 seem already to be discounted.
While GDP numbers suggest the economy already has recovered from the mild recession of 2001, the pace of the recovery was slow. In fact, Mr. Truscott thinks the current economic expansion is fragile, and many aspects of the economy still have not recovered, including the stock market, employment, manufacturing and business investment. Inflation will be benign, although a tad higher than in 2002, and won't threaten even a weak expansion.
If the economy takes off, however, Mr. Truscott predicts pain for fixed-income markets. Interest rates will rise moderately this year, he said, with the Fed's last rate cut in 2002 likely accelerating the timing of the first rate cut of this year.
As for Iraq, "a short war will boost confidence, but will not alter the forecast," Mr. Truscott said. All bets are off, however, if the war is prolonged, he said, as it likely will result in higher energy costs and negative consumer sentiment, keeping the S&P 500 and the Nasdaq in negative territory for yet another year.
William F. "Ted" Truscott
Chief investment officer
American Express Financial Advisors, Minneapolis
Assets under management: $222 billion
S&P 500: just above 1,000
Hot sectors: health care, media, entertainment
Hot stock strategy: large-cap growth
Favorite stocks: AOL, Cox, CMCSK (Comcast)
Shearson Lehman Broad Investment Grade index: 5% to 6%
Lehman Broad Investment Grade index: 6% to 8%