BOB MOON: From the Frank Stanton Studios in Los Angeles, I’m Bob Moon in for Kai Ryssdal who will be returning from his holiday break tomorrow.Wall Street’s time off, on the other hand, will be stretching beyond this New Year’s Day 2007 and into tomorrow in tribute to the late former President Gerald Ford.
Perhaps investors can use the rest. As we mentioned at the top, it turned out to be a very good year for the stock market — thanks mostly to the rousing latter half of 2006.
Now, as Marketplace’s Amy Scott reports, the deck might be stacked against that kind of performance in the coming year.
AMY SCOTT: Wall Street drew one good card after another in the second half of 2006. Back in August the Federal Reserve stopped raising interest rates for the first time in more than two years. Corporate profits were on track to post their fourth straight year of double-digit growth. Mergers and acquisitions exploded. And all that helped push the Dow up 16 percent, the S&P 500 14 percent, and the Nasdaq 9.5 percent. Economist Hugh Johnson with Johnson Illington Advisers doesna€™t expect the luck to last.
HUGH JOHNSON: You know, you just can’t sustain those kinds of gains in profits, those kinds of gains in the stock market for that long a period of time. And, in fact, you hope that we don’t sustain those kinds of gains. They can become very, very speculative, and that would be worrisome. No, I think things are gonna slow down.
What will slow them down, Johnson predicts, is a slowing economy. He says that will drag on corporate profits and bring stock market gains back down to a more earthly 7 to 9 percent this year.
DAVID JOHNSON: That’s the best thing that you can have going into a new year, is that sort of skepticism.
David Johnson is a stockbroker and Marketplace commentator. He says if everyone is invested in the market, prices have nowhere to go but down. A little negativity might keep some investors on the sidelines.
JOHNSON: That’s why I like waking up on New Year’s Day and seeing a fair amount of skepticism about the market, because it means that not everybody’s in.
In other words, all that skepticism could actually help the stock market. Johnson’s advice is to stay invested in stocks — but, as always, spread the risk around.
In New York, Ia€™m Amy Scott for Marketplace.