Market Outlook for 2008

Alright, since my mutual fund research process has been slowed down somewhat, I will share my investment thoughts/expectations for the year.

Interest rates: I think there will be additional, albeit smaller (25bps), interest rate cuts in the future, but 2008 will NOT end with interest rates below 3%. For interest to stay that low (or lower) for that long would mean that U.S. economy would be in absolutely dire economic shape by the end of the year (which I obviously don't foresee happening) and/or that Fed will forget about its duties to monitor inflation.

Stock market: Overall stock market will rise in high single-digits or low double-digits because there are more sectors and companies with strong earnings than those going into the red in 2008. Financials sector is likely to gain a significant momentum by year since the subrime market crisis has pulled down many sound financial institutions and even punished too severely those who did deserve to be punished. Once investors will see that those companies are still making money and lots of it, they will create plenty of demand to push share of those companies up.

Attractive sectors/industries: Besides Financials, I think that Healthcare, Technology, and Consumer Staples will outperform the overall market.

• Healthcare sector tends to be independent from the overall market conditions and here is what in particular I like in Healthcare: Big Pharma and biotech stocks have been beaten down and are likely to show solid results. Companies such as AstraZeneca and Amgen have plenty of high-potential products in the pipeline and are currently selling at attractive prices. Medical equipment manufacturers should also benefit from the rising medical costs, one that I like in particular is Medtronic.


• Technology companies will benefit from renewed focus on efficiency (as always happens during economic downturns), constantly increasing demand for bandwidth and data storage put these companies in a good position: Cisco, Accenture, and EMC are the ones that I would pay attention to. Microsoft is also likely to post strong earning growth in 2008 as its Vista OS will receive wider implementation among business users.


• Consumer Staples such as Johnson & Johnson and Procter & Gamble have diversified portfolios of consumer products that people need on a daily basis regardless of the overall economic conditions. Currently, both of these companies (especially J&J) are selling at attractive prices.


• In general, large global companies who do not depend on the outside financing and have strong presence in the emerging markets should do well relatively to the overall market.