Healthier stock market predicted with slow-but-steady economy
While the year 2000 gave a lot of bad news to the financial markets, 2001 brings the promise of good news in the form of a healthier economy, according to a special report prepared for the Pilot Tribune by A.G. Edwards' top strategists and economists.
"The combination of high energy prices, interest rate increases and the election turmoil kept the stock market from gaining momentum this year," said Gary Thayer, A.G. Edwards' chief economist. "Fortunately, the economy is reaching a key point where it is slowing but still growing. This type of healthy economic environment historically has been very good for both stocks and bonds."
Using a car-driving analogy, Thayer explained the economy typically goes through three stages during an economic slowdown. The first stage is where the economy starts to slow but is still exceeding the "speed limit" of typical growth. In the second stage, where the U.S. economy is right now, the economy continues to slow, but the Federal Reserve keeps its foot on the brake by keeping interest rates at a high level.
During the third stage, Thayer said growth slows enough that the Federal Reserve sees that the economy no longer needs to be restrained and usually cuts interest rates.
Read the rest of this article in the 1/04 Pilot Tribune.