Where Best To Invest After March's Banner Month
Friday, March 31, 2006SUSIE GHARIB: March was a pretty good month for stock investors: The Standard & Poor's 500 Index rose more than 1.5 percent. Now that the first quarter is drawing to a close, investors face the question of how to position themselves for the future.
Erika Miller got some answers from the pros.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: On Wall Street, March went out like a lamb. Most market averages lost ground today. But you won't hear many investors complaining. For the month as a whole, stocks racked up good gains.
The big question on Wall Street: are stocks still a good bet heading into second quarter?
BARRY HYMAN, EHRENKRANTZ KING NUSSBAUM: We think stocks are still going to outperform other asset classes. We do not see a booming bull market about to start from these levels. But we do see a ratcheting slowly higher.
MILLER: Hyman and others expect strong corporate earnings to lift stock prices in the coming months. Still, they see several major headwinds that could restrain gains. First, rising interest rates. If the Fed hikes short-term interest rates too much, analysts worry it could create an economic hard landing and perhaps lead to recession. Another concern is upcoming midterm congressional elections. Strategists say the possibility of political changes could increase investor anxiety. There are also seasonal factors working against stocks. Since 1945, the S&P 500 has gained about 2 percent in the second quarter. It has risen just 0.1 percent in the third. Those have historically been the two weakest periods of the year. Even so, most investment strategists do not recommend bailing out of stocks entirely.
Instead, some recommend moving out of small caps and into large.
HYMAN: As interest rates go higher, the leverage that is in the small to mid caps should start to dissipate, not unlike what happens in emerging markets. Because those are the riskiest areas.
MILLER: Others recommend looking for U.S. companies with good growth prospects abroad.
BRETT GALLAGHER, JULIUS BAER INVESTMENT MANAGEMENT: Right now, we still tend to lean toward the industrial side of the economy. Most major, larger industrials do have a pretty good non-U.S. focus. A lot of them are taking advantage of the very strong growth in the emerging markets.
MILLER: If you plan to sell stocks in April, experts say you may want to do it in the next two weeks. Historically, the market tends to fall in the second half of the month. One theory is many some investors sell their stocks to pay their tax bills.
Erika Miller, NIGHTLY BUSINESS REPORT, New York.
