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WESTFALIA INVESTMENTS
TECHNICAL COMMENTS
The U.S. economy continues to show strength, but signs of a slowdown in the second quarter are coming into view. Consumer spending is looking weaker after two consecutive strong quarters.
Inventory building in the first quarter was very strong, but the inventory
gain was mostly voluntary and should diminish in the second quarter. Vehicle
sales remained sluggish in May with little signs of accelerating. As we
see it, the inflation numbers for May will be consistent with previous
readings showing inflation under control. We believe the Federal Reserve
will keep monetary policy unchanged at the next FOMC meeting in July.
EQUITIES: In our May 29 comment we said, "the stock market was in a strong technical position and would soon challenge the 7500 level." We admit, out previous call for a Dow 7500 during the summer was anticipated. The question is, where do we go from here?
To begin with, our long-term outlook remains very positive. We see the
Dow reaching 10,000 sometime in the early part of 1999. Why are we so optimistic
in the long run? We see continued global expansion favoring our domestic
economy and secondly we believe U.S. tax cuts will benefit the U.S. consumer
as savings continue to grow in tax deferred accounts. In the short term,
we suspect the market is headed for some profit taking as the second quarter
draws to a close. We look for a pullback down towards the 7200 during the
next few weeks.
DOLLAR: The upcoming G7 summit in Denver will address a variety of global
issues, we do not expect any specific statements addressing the strong
U.S. Dollar.
BONDS: Long-term yields holding steady around the 680 level and could
test the 6-5/8 range before the next FOMC meeting. GOLD: The gold market
remains range bound with little news influencing.
June 12, 1997
Peter Cardillo, Director of Research
Westfalia Investments, Inc.
90 West Street, New York, New York
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