|
Merrill forecasts 2001
|
 |
December 6, 2000: 7:16 p.m. ET
Merrill sees slower growth in 2001, but no recession in U.S.
|
NEW YORK (CNNfn) - Merrill Lynch, the largest brokerage firm in the U.S., said Wednesday that it expects economic growth to slow worldwide next year, but that the U.S. probably will not go into recession.
In a report that summarized the opinions of the firm's more than 900 analysts, economists and strategists around the world, Merrill said that global gross domestic product (GDP) is expected to rise 3.2 percent, which is down from this year's level but stronger than in 1998 and 1999. Merrill Lynch chief economist Bruce Steinberg said that U.S. GDP growth will be about 3.25 percent, down from this year's 5.1 percent, and the slowest U.S. growth rate in six years.
Steinberg forecasts that Europe's GDP will rise to 2.8 percent, versus 3.5 percent in 2000, and Japan's will rise 1.5 percent, down from 2 percent this year. Oil prices should decline, he said, and inflation will be subdued.
"The Japanese New Economy is gradually developing, but growth is being held back by the substantial deadwood of the old economy," Steinberg said. "Policy paralysis seems all too likely to continue."
While Steinberg forecasts slower growth for the U.S., he doesn't expect the country to enter a recession next year. He expects the Federal Reserve to lower interest rates twice during the first half of next year, bringing the Fed Funds rate 50 basis points lower to 6 percent by mid-year. The U.S. central bank has raised rates six times and 1.75 percentage points since last summer in its fight to quell inflation.
The European Central Bank is likely to follow the Fed, especially if the euro strengthens against the dollar, he said.
S&P seen rising 27 percent
Merrill forecast that the earnings growth of Standard & Poor's 500 companies will slow to 8 percent in 2001 from 13 percent in 2000 and 17 percent in 1999. Despite this slowing of earnings growth, the brokerage firm forecasts that the S&P 500 index, a broad measure of the stock market, will rise 27 percent from its current level to end 2001 at 1,720. Merrill expects the S&P 500 to end this year at 1,450, up from 1,351 as of Wednesday.
"The upside is critically dependent on an aggressive Fed easing," David Bowers, chief global investment strategist at Merrill Lynch, said at a press conference. Gains in the index are also dependent on inflation remaining low, he said.
Bowers recommended that U.S. investors take a defensive stance, investing in industries that can do well even if consumer spending weakens, such as supermarkets, utilities, healthcare, energy, and drugs. He recommended that investors "under-weight" technology, telecommunications, and consumer cyclicals.
"Bonds and cash might be quite competitive to S&P 500 returns over the next year," he said.
Merrill's Global Technology Strategist, Steven Milunovich, said that while technology stocks have come down in price dramatically, they still are not bargains. The Merrill Lynch Technology 100 Index, which rose 400 percent between Oct. 1998 and March 2000, is down 40 percent from its March peak. Internet stocks as a group are down 70 percent from March. Personal computer sales have slowed, and there are concerns about capital spending by telecommunications companies.
Personal computer unit sales growth could slow to 15 percent in 2001, with mobile phone handset sales rising to 550 million, Milunovich said. Communications equipment makers are vulnerable to credit problems because they aggressively financed equipment purchased by small, upstart telephone companies. On the other hand, the growth of corporate IT budgets in 2001 should be similar to or even faster than this year, he said.
Milunovich advised tech investors to "over-weight" computer services, storage, and software, while under weighting Internet stocks and semiconductors. Merrill's favorite technology stock for 2001 is Solectron (SLR: Research, Estimates), a contract manufacturer of electronic components, partly because Japan is starting to outsource electronics manufacturing.
Merrill also likes America Online (AOL: Research, Estimates), Convergys (CVG: Research, Estimates), Cisco (CSCO: Research, Estimates), Nortel (NT: Research, Estimates), VeriSign (VRSN: Research, Estimates), and ST Microelectronics (STM: Research, Estimates). 
|
|
|
|
|
 |
|
