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Strategist sees Dow at 7000
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November 8, 1996: 9:31 p.m. ET
Smith Barney's John Manley says health care will be leading market sector
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NEW YORK (CNNfn) - One of Wall Street's leading investment bankers Friday predicted the Dow Jones industrial average will hit 7,000 before the end of the year.
John Manley, investment strategist at Smith Barney, said Tuesday's election results gave the markets the best of all possible worlds -- a split between the two branches of government. Despite getting what it wanted, Manley said the results did not create enough euphoria to have a big impact on the economy.
He said Wall Street tends to take the view that government should be inefficient and Wall Street efficient.
Appearing Friday on Moneyline with Lou Dobbs, Manley said the election results, combined with a decline in the yield of the government's benchmark 30-year bond, created a magical moment.
"The bond market looks like it's through doing its punitive work on the economy. Four months ago, the long bond was 10 percent above its 52-week average. That back-up slowed the economy down. Now it's back to its average yield. That's very positive for stocks," Manley said.
By far, the biggest issue that concerns the markets is the budget. Big business will probably do well over the next four years since most in Congress are pro-business.
"I think the budget is the biggest question, although I'm fairly optimistic about that. I suspect I'll be paying higher taxes before the next year is over, and that's a positive. The tone of the election was relatively pro-business. I think that's a positive thing for the markets," he said.
From an economic standpoint, Manley said Clinton's second term will be relatively uneventful. (111K WAV) or (111K AIFF)
"The bond market has done a wonderful job keeping the economy from getting too hot or too cold. In the last two or three years, the road is littered with strategists who have been saying it will be too hot or cold."
The market will most likely climb further, Manley said, because interest rates usually go up before the market peaks.
"We could have some problems next year. The bond market acting the way it does tends to push out corrections and give us a lease on life. A bond market like the last two months is good for stocks," he said.
Among the stocks Manley believes to be good picks include General Electric, Intel, Kimberly-Clark and Proctor & Gamble. Those are attractive, he said, because those companies tend to dominate their respective industries.
Manley likes drug stocks including Eli Lilly, Pfizer, and Merck, as well as health maintenance organizations such as Aetna will probably see good fortunes, Manley said. He believes their legislative hurdles may be over which will mean lower prices.
"Health care has been held back in the last couple of months because of the concerns about the election. It's fundamentally a good industry. The world is getting older, sales are growing 10 percent versus almost no growth for the S&P 500."
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