The biggest concern cited by Liberty Financial's experts is interest rate-related. Although most believe the Fed will raise rates by at least 25 basis points at its February meeting, some, like Erik Gustafson, manager of the Stein Roe Growth Stock Fund, say that raising rates too far would be a mistake. The Fed is worried about the Phillips curve - low unemployment leading to higher inflation. The market will overcome interest rate fears. Scott Schermerhorn, senior vice president at Colonial Management Associates is concerned the stock market is doing too well, even as interest rates are bumped up.
Investors drive the market and investors ignore the fact that rates are rising, which is dangerous.
Investors chasing current Dot com companies at unheard of valuations should be more cautious as either rates or valuations of growth stocks need to come down. Paul LeFevre, chief operating officer for Keyport Life Insurance Company, one of the premier providers of fixed, variable and indexed annuities, feels that higher rates have some benefits. When asked if the dot-com bubble would burst in 2000, one fund manager, Mark Stoeckle, senior vice president of Colonial Management Associates, doesn't believe so, but predicts it will spring a leak in 2000. The problem is that these companies are not putting their money in bricks and mortar. They are building brand awareness on advertising.