wmeubank@ocp.kcmo.com
WESTFALIA INVESTMENTS TECHNICAL COMMENTS
We expect second quarter growth to slow significantly!
Durable goods orders fell sharply last month, following a drop of 1.5% in factory orders. As we see it, it is not unusual to see strong growth in one quarter followed by a retrenchment in the next. We believe the April retail sales data will provide further evidence of economic slowdown. We look for continued growth with inflation under control!
EQUITIES: The strong surge in stock prices was fueled by the budget deal. In our opinion the budget accord adds to the list of strong positive fundamentals for the stock market. We were delighted to see the inclusion of the mid- to smaller cap stocks in the recent run up, we think the participation of the smaller group will help prevent another sharp correction.
In the short term, we see the stock market in an overbought condition and look for profit taking to bring the Dow back down towards the 7000 level. We continue to look for a summer rally taking the Dow towards the 7500 level.
DOLLAR: No change, we look for the G7 to soon begin selling the greenback in favor of the German Mark and Japanese Yen.
BONDS: Weaker economic news to keep long-term rates under 7%.
We continue to look for long-term rates to move down to 6<$E5/8>%.
GOLD: Stand aside!
May 7, 1997
Peter Cardillo,
Director of Research Westfalia Investments, Inc.
90 West Street,
New York, New York
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