Dec. 8, 1997
Dan Adkins, 606-257-1754
EXPECT A SLOWDOWN IN 1998 STOCK MARKET RETURNS, UK ECONOMIST SAYS
After six years of witnessing remarkable growth in the stock market, investors should be prepared for a weakening market during 1998, University of Kentucky economist Donald J. Mullineaux warned Monday.
"If interest rates stay stable and the economy stays strong, I think the market can go up some more, but not by the same pace as we've seen," Mullineaux told a news conference.
"The stock market has shown strength that amazes everybody, except maybe God," he quipped.
Mullineaux spoke at a news conference announcing the release of the UK Center for Business and Economic Research's "1998 Kentucky Annual Economic Report," which included his article, "U.S. Financial Market Outlook: Can the Bull Gallop On?" Mullineaux holds the duPont Endowed Chair in Banking and Financial Services at the UK Carol Martin Gatton College of Business and Economics.
He predicted interest rates may rise by half a percentage point by mid-1998, but noted his forecast depends on "what the economy does and how the Federal Reserve responds to it."
Mullineaux noted the stock market has enjoyed several years of robust growth, with share prices rising an average of 15.3 percent per year from 1991 through 1997.
Meanwhile, the value of the U.S. dollar is expected to decline slightly during 1998. In 1997, the dollar has surprised analysts, who started the year predicting a weak dollar, Mullineaux said. By mid-year, the dollar had defied those predictions by reaching an eight-year high compared to other well-established currencies.
In his article, Mullineaux cautioned that the "stock market would no doubt falter in the face of either accelerating inflation or a severe slowdown in real economic growth. Accelerating inflation will bring higher rates of interest, while a weak economy would mean a decline in profit performance.
"Either would be bad news for stock market investors," Mullineaux said.
-30- CONTACT: Don Mullineaux, 606-257-2890.
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