Roaring market: roaring recovery?
The stock market is predicting a dramatic upturn in the economy.Skip to next paragraph
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In the face of some steep declines in the past, Wall Street has predicted recessions that never occurred. This time around, is Wall Street on target? And if it is, when will the rest of the country begin to feel as rich as the brokers who are frantically writing tickets on Wall Street?
Economists and stock market professionals surveyed by the Monitor hold that the market is on target this time: There will be a substantial recovery of the economy. But they differ widely on when it will occur. Some believe that by Christmas retailers will begin to notice a new optimism among consumers - who will be the driving force behind the upturn - while others feel the recovery Wall Street is anticipating will take place in 1984, at least 14 1/2 months from now. And some economists believe there has been a significant amount of structural damage done to the economy as factories have closed permanently and some industries have shrunk. This would inhibit the ability of the economy to bounce back completely.
How strongly it will snap back is the subject of some debate. Some economists , such as Allen Sinai, senior vice-president and economist at Data Resources Inc., a research firm, predict the recovery will be anemic early in 1983 but will gain strength later in the year. Others, however, say the recovery will begin shortly and will be ''quite strong'' by the end of the first quarter of 1983. They say auto sales and housing will make a dramatic comeback.
Economists have a variety of reasons for believing the market is correct this time in predicting an economic upturn. Martha Seger, an economist and commissioner of financial institutions for the State of Michigan, notes that, ''of the government's leading indicators, stock prices have the best batting averages. . . . You can't look at every daily wiggle, but I think it's right this time.''
Richard Hoey, chief economist at Bache Halsey Stuart Shields Inc., a brokerage, says he thinks the market is on target this time because the Federal Reserve Board has changed its policies. ''Paul Volcker has been hinting for three months that he would tend to generate an economic recovery even if the money supply accelerated. Last week, he stopped hinting and committed himself. He said he will do it and he has the power to do it.''
Exactly when the recovery will occur is another matter. Ms. Seger, for example, expects the economy will start perking up this quarter and will be ''dramatically better'' by the first quarter of 1983. But the recovery won't come until 1984. ''The market fully understands the recovery over the next six to nine months will be anemic,'' he says, ''and is looking a good deal into the future. We expect a solid recovery in 1984.''
Some key investors disagree. John Bogle, president of the Vanguard Group of mutual funds, which manages $5.6 billion, says he is expecting the recovery to begin in the fourth quarter. He says that ''even autos ought to begin to show some improvement and over the next nine months should really start to do something.''