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January 01, 2002 at 07:00 PM
As Wall Street firms hold their annual year-end market outlook briefings in New York in December, each is maintaining a bullish stance, predicting the economy will rebound in 2002.
Bruce Steinberg, Merrill Lynch’s chief economist, said the U.S. would continue to feel the chill of recession throughout the winter, but could expect a recovery to settle in by spring. “The global economy is in a synchronized global recession,” Steinberg said. “The U.S., Europe, Japan, and the emerging markets are all in recession. Until September 11, we weren’t sure that the U.S. would be in a recession.” The uncertainties that followed September 11, he says, stymied capital spending. As a result, the longest expansion in U.S. history came to an end. Third quarter gross domestic product shrank to a 1.1% annual rate and fourth- quarter GDP is contracting at a similar pace. “GDP will continue to decline into the 1st quarter, and corporate America must downsize further,” he says. “But “by the end of next year, we will see a synchronized global upturn.”
Economists are also confident that Fed easing will spark further economic expansion. “Fed policy works,” said Alan Levenson, T. Rowe Price’s chief economist. “We are not headed for deflation; we will get a recovery next year. It will not be the 5%, 6%, or 7% growth rate [of past years], but rather growth of 4%.” Steinberg predicted a 5% growth rate for the U.S. economy next year.
Putnam Investments’ senior investment team predicts in its Capital Markets Outlook report that “the worst is behind us and that world equity markets will register moderate overall gains in 2002, led by the United States.” The team predicts a fair value of 1,325-1,350 for the Standard & Poor’s 500 by year-end 2002. Putnam economists forecast a recession will linger until the second quarter, “with no substantive improvement in corporate profits until next year’s second half.”
