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Panel sees half-point boost
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May 16, 2000: 7:39 a.m. ET
Analysts at Las Vegas conference say Fed will succeed with cooling measure
By Staff Writer Alex Frew McMillan
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LAS VEGAS (CNNfn) - A panel of portfolio managers and investment strategists, speaking at an investment conference, leaned toward an interest rate increase of half a percentage point when Federal Reserve policy makers meet Tuesday.
Though two of the five panelists anticipated a smaller, quarter-point increase, they left little doubt rates would go up. The Fed might not be done there either, they suggested, with chairman Alan Greenspan and his colleagues now viewed as being behind the curve on battling inflation.
"We'll have half of one percent now, maybe nothing next month, maybe something in July or August," said Frank Cappiello, chairman of the Cappiello-Rushmore Mutual Funds, in comments at the Money Show conference late Monday. He anticipates a full-point rate increase in all, adding "But we're almost at the end."
A cooling effect
Faced with higher rates, the U.S. economy will likely cool this year and earnings growth will slow, many of the speakers at the conference conceded. But the prospects for the U.S. markets as a whole are still positive, most of the speakers agreed, predicting that the major market indexes will still end the year higher.
 Joe Battipaglia, chairman of investment policy for Gruntal & Co., predicted Nasdaq would close the year at 5,500. "Six thousand wouldn't come as a surprise," Battipaglia said.
Battipaglia, who also predicted the Dow would close up about 2,000 at 12,500, was by far the most upbeat pundit when it came to tech stocks, though. He rattled off a litany of around 50 stock picks that the investors attending the conference hustled to write down -- from Intel (INTC: Research, Estimates), Applied Materials (AMAT: Research, Estimates), Motorola (MOT: Research, Estimates), Microsoft (MSFT: Research, Estimates) and Qualcomm (QCOM: Research, Estimates) in technology to Pfizer (PFE: Research, Estimates), Merck (MRK: Research, Estimates) and Johnson & Johnson (JNJ: Research, Estimates) in pharmaceuticals and Chase (CMB: Research, Estimates) and American Express (AXP: Research, Estimates) in financial services.
International markets hold most promise
But the best opportunities lie outside the United States, Battipaglia and several other guests agreed. As earnings growth becomes harder to generate, the U.S. market will become more selective, he said.
 Counting on large, broad gains in U.S. indexes, such as by investing in U.S. index funds, won't generate the returns they may have in the past few years, he continued. "The active managers are really going to be able to show their stuff," Battipaglia said.
Paul Matthews, president and CIO of the Matthews International Funds, said Asia offered a very positive outlook. Specifically, Japan, South Korea and China have the best potential, he said. Because some Asian markets are closed to direct investment, it's best to invest via mutual funds in that part of the world, he explained.
Matthews added that he would avoid Malaysia because of its unstable politics.
Techs further to correct?
Elaine Garzarelli, president of Garzarelli Investment Management, reiterated her feeling that tech stocks still had another 20 percent to 40 percent to give back, after their massive run-up last year. She believes technology stocks are still 30 percent overvalued, by her company's calculations.
"I'm not a bear, but my indicators are," she said in a backstage interview after the event. In fact, she said 1999 was a bear market for many stocks, with 77 groups declining and only 30 increasing in value. Excluding technology, the average S&P 500 stock declined six percent last year, she said.
 Stocks are likely to continue to underwhelm for the next six to 12 months. "We're temporarily overvalued," she said.
But the trend is temporary, she added. Once tech stocks correct further and when the economy returns to more stable growth rates of 3 percent to 4 percent, she thinks the outlook will be rosier. Inflation, which she calculates at 3.7 percent, needs to drop back to the 2 percent range, she said.
Given how volatile the markets are, she said the necessary tech correction could happen more swiftly than she anticipates. But until it does, over the next six to 12 months, she favors "old economy" plays such as the beverage and food groups, with companies such as Conagra (CAG: Research, Estimates) and Nabisco (NGH: Research, Estimates), as well as Philip Morris (MO: Research, Estimates) in the tobacco group and several natural gas and oil drilling companies.
Garzarelli still said both the Dow and Nasdaq will close the year 5 percent to 10 percent higher. But she agreed with Battipaglia that the days of 20-percent growth across the board in the major indexes are likely gone over the next five years.
Despite their caution about higher rates cooling the economy, the panelists tended toward a warm close to the year, particularly given that this is an election year -- when stocks tend to perform well. John Dessauer, editor of John Dessauer's Investment World, forecast a 12,000 close for the Dow and 5,000 for Nasdaq.
The panelists favored Greenspan & Co.'s gradual approach to raising rates. Some credited the Fed chairman with a policy for alerting the markets about future rate hikes and not trying to spook them.
"The only risk out there is that Alan Greenspan will go one step too far and put us in a recession," Cappiello said. "And it's hard to see what he's doing now as putting us in a recession."
The conference, which runs through Thursday, is taking place at the Bally's and Paris hotels. The analysts appeared as guests on a panel emceed by television host and newsletter editor Louis Rukeyser. About 14,000 individual investors are participating in the educational events and sales presentations. 
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