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| Adrian Mastracci, president of KCM Wealth Management, says “The US economy is the one to watch. The direction that it takes will, to a large degree, influence the other major economies and stock markets." |
For Immediate Release
Vancouver, BC (January 12, 2004): The past year served up some very welcomed market gains.
Adrian Mastracci, investment counsel and president of Vancouver’s “fee-only” KCM Wealth Management, comments, “The pressing question for investors is what are the expectations for 2004 in view of the impressive, and mostly unforeseen, gains made in the past year?”
Well, 2004 is shaping up to be a year of mixed signals. Muddled waters you might say.
The case can be made for both the running of the bulls and a sprinkling of the bears. Heaven forbid.
The US economy is the one to watch. The direction that it takes will, to a large degree, influence the other major economies and stock markets.
Let's contemplate some bullish indicators for the US economy:
- 2004 will see the joy of spending during the presidential election year.
- Interest rates are not expected to rise much, if at all, from the current 45 year lows.
- Job loss figures are abating from the hot pace of the last couple of years.
- Fewer Americans are making claims for unemployment benefits.
- The manufacturing employment index published by the Institute for Supply Management (ISM) rose in December 2003.
- Surveys show improved hiring plans during the first quarter of 2004.
- The Organization for Economic Co-operation and Development (OECD) publication of last week indicated that the US economic recovery prospects are improving.
- The consumer is still hanging in, busily purchasing goods and services.
- The imminent releases of fourth quarter 2003 earnings reports are expected to be well received.
Lest we forget, highlights of some bearish indicators:
- The recent unemployment reduction figures were achieved at the expense of people dropping out of the workforce.
- Companies are still trying to reduce their overhead by shifting some of the workforce overseas to lower labour cost markets.
- Business spending is still in the cautious zone, especially for small business.
- A continued decline of the US currency is likely.
- High energy prices are expected to stay around for a while. Inflation could make a cameo appearance.
- Last week the International Monetary Fund (IMF) urged US politicians to focus on a plan to balance the fiscal budget, expected in the vicinity of a $500 Billion deficit in 2004.
- Job growth is still an elusive concept for US employers.
- Americans have accumulated a mountain of debt and it’s still climbing. Recent figures indicate that, excluding mortgages, the average American household owes in the neighbourhood of $18,700. About $7,000 of that is on credit cards.
- The US savings rate is estimated at around 2 percent of after-tax income. This implies that many may not have sufficient resources to weather a financial squeeze. Accumulations for retirement could also be in some jeopardy.
Let's put these two scenarios in perspective. And perspective is what's really needed. Plenty of it. Economics is far from an exact science.
Since no one knows how 2004 will ultimately unfold, here are some considerations:
- Exercise reasonable caution. Refrain from chasing the investment sweethearts of yesterday.
- Expect some corrections and volatility. Markets have risen a long way in a short time.
- Pay attention to things that can be controlled. Such as the game plan, the asset mix, the risks, the level of diversification, the investment selections and all the investment costs.
- Monitor and review the holdings periodically. Take action as required. Hold for the long journey.
My perspective on what may transpire is two fold. There is a better chance of an improving US economy in 2004. However, there is also a probability of slipping into reduced economic activity.
Job creation will influence the sentiment for the US economy and the markets. It is also entirely possible to experience both a rise and decline in stock prices in 2004. Think of it as a roller coaster.
Accordingly, my 2004 range of expectations for US stocks is a potential upside of 7% to 12% and a potential downside of -10% to -15%.
Now for your perspective!
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