With the economy expected to continue its moderate recovery next year, where are the best place for investors to park their money?
If history is any guide, the stock market may not turn in a blockbuster performance in 2005, although the Standard and Poor 500 Index should show a moderate gain, said Anthony Chan, senior economist for JPMorgan Fleming Asset Management.
Speaking Wednesday at the ASU/Bank One Economic Forecast Luncheon Wednesday at the Phoenix Civic Plaza, Chan said financial markets tend to under perform during periods when interest rates are rising. And he expects the Federal Reserve Board will continue to raise interest rates next year, although maybe not as fast is it normally would during an economic recovery.
Chan said investors should look to industries whose stock prices have been beaten down during the recession, industries that would be less affected by higher interest rates and companies that could benefit from a weaker dollar in international currency markets.
He said he likes large cap companies that export many of their products because they should benefit from the weak dollar, which will make their goods cheaper in foreign markets. Also he likes two industries that have been out of favor — high technology and insurance — because their prices have declined.
He also likes the tourism sector because the weak dollar will spur more foreign visitors to travel to the United States. And companies with a large presence in China will benefit from the rapid growth in that country, he said. Because he expects the dollar to continue to weaken, he said investors could do well in gold mining stocks.
Chan is less bullish on banks and home builders, which could be hurt by rising interest rates. He also is cautious about retailers, saying the stimulus to consumer spending from tax refunds and mortgage refinancing isn’t likely to be as significant in 2005 as in the past few years.
Chan is strongly negative on the outlook for airlines, saying they have almost no power to raise their prices or their profits.