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Cohen upbeat on market
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December 18, 1997: 8:45 p.m. ET
Noted market expert sees slowdown in earnings growth but also low inflation
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NEW YORK (CNNfn) - Goldman Sachs market strategist Abby Joseph Cohen Thursday said corporate profits are likely to slow down next year, but with inflation seemingly under control, corporate profits should still remain above historical trends.
In an interview on "Moneyline with Lou Dobbs" Cohen said corporate profit growth in 1998 is likely to slow down to around 8 percent from an expected rate of 11 to 12 percent this year.
However, inflation is expected to average around 2 percent next year, generating real corporate profit growth of about 6 percent.
Cohen said typically a slowdown in corporate profits would hurt price-to-earnings (P/E) ratios for companies. But, with inflation in check, the effect on P/E ratios should be less dramatic. (WAV 282K) or (AIFF 282K). P/E ratios, used by market watchers to compare different stocks, are calculated by dividing the current market price of a stock by the earnings per share.
Contrary to some market experts, who have predicted the slowdown in Asia could hurt many multinational firms in the United States, Cohen said the Asian economic crisis could actually be a positive development because it should keep inflation under control next year.
"Our position all along, Lou, has been this was a major economic event but mainly in Asia," she said. "The United States economy is like the supertanker. We may be the world's largest exporter, but we also have the world's largest domestic economy that remains in very sound shape."
"Clearly there are some companies based in the United States that do more business than others in Asia; they may be seeing an impact but in aggregate, we think the impact will be small in terms of economic growth and profit growth," she added.
Within the U.S. equity market, Cohen said financial services firms, technology companies and small- to mid-cap companies are likely to be attractive to investors next year.
"In 1997, investors were going for the sizzle around the world; this time they're going for the steak," Cohen said. "The United States is the supertanker economy and assets in the United States represent good value."
Earlier Thursday, the Dow Jones industrial average fell nearly 111 points, or 1.39 percent, to close at 7,846.50 while the Nasdaq composite index slipped 24.18 points, or 1.56 percent, to 1,523.19. 
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