Cohen: More gains ahead

April 7, 1998: 7:16 a.m. ET

Analyst disregards earnings, says strong economy will bolster stocks

NEW YORK (CNNfn) - A leading market strategist said Monday she is not worried about corporate earnings and expects the Dow to continue its march "onward and upward."
     Abby Joseph Cohen, co-chair of the Investment Policy Committee at Goldman Sachs, told CNNfn's "Moneyline with Lou Dobbs" that strong economic fundamentals will continue to boost the market.
     She also discussed Monday's mega-merger of Travelers Group Inc. and Citicorp.
     Here are excerpts from that interview.

JAN HOPKINS, CNNfn ANCHOR: You recently raised your target for the year. First of all you said 8,700. Now we're at 9,000, but you had raised it just a little while ago to 9,300. Are you ready to raise it again?
     ABBY JOSEPH COHEN, CO-CHAIR, INVESTMENT POLICY COMMITTEE, GOLDMAN SACHS: Not quite yet. We raised the target a few weeks ago when we took a closer look at likely profits for 1998 and 1999. Our conclusion was that U.S. companies will continue to see their earnings grow and that will move stock prices higher.
     HOPKINS: So even though we're going into the earnings season and a lot of people are worried about earnings, you're not.
     COHEN: I'm not. I think that earnings will be reasonably good in the first quarter. The domestic economy was quite strong and we had some technical factors. There was a change in accounting standards in the first quarter of 1998. And I think many shareholders are catching up with this a little bit later than they should have.
     HOPKINS: But onward and upward in your view.
     COHEN: I think onward and upward because the fundamentals are good. The economy is solid. Profits are good, inflation low. Jobs are being created. And I think that we can look forward to further stock price increases.
     HOPKINS: It's interesting that from 8,000 to 9,000 was not a straight line up. We had that big drop in October. What about 9,000 to 10,000? Might there be corrections?
     COHEN: We have had a stock market that has moved like a staircase. We've had significant price increases happening quickly and then we get stuck in a very volatile trading range. It wasn't just the last 1,000 points. It's happened several times before that. So I would not be surprised. This is not a market that has moved only in one direction. We have had these resting periods before.
     HOPKINS: And what do you advise investors (to do) as they see this market just powering ahead. Be cautious? Look to the long term? What?
     COHEN: I think investors should always be cautious. They should always be focusing on the specific stocks that they're buying, making sure that those companies are in good condition. Our feeling is that the U.S. economy is in great condition. The stock market will go higher, but stocks are not as inexpensively priced as they used to be and with that comes greater vulnerability if there are fundamental disappointments.
     HOPKINS: What could unravel the market? What could those disappointments be?
     COHEN: Well, first I think the greatest risk in the market is that we may get stuck for a period of time. I don't expect any notable decline in stock price, but among the things that we will be watching -- and have been watching for the past year -- are profits and inflation, especially on the wage side. And developments in Asia, especially Japan.
     HOPKINS: Let's talk a little bit about mergers because we had this huge deal Tuesday. Do you expect mergers to continue? And I should add you've been recommending both Citicorp (CCI) and Travelers (TRV) stock.
     COHEN: We have been very keen on the financial services industry in the United States because we think it is an extraordinarily well-managed industry with great opportunities. Keep in mind that this is a merger of strength. This is not a rearrangement because there's a weak partner somewhere. And as we compare U.S. financial services companies, we think it is a very solid industry versus the rest of the world. The same is true of the U.S. technology sector.

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