However, it would not include the rate sensitive stocks. We prefer the scenario that includes financial services with consumer cyclicals and technology. Within the consumer cyclicals sector, there are some groups that are especially well positioned to benefit from the eventual recovery in the economy. These are portions of the retail sector that have comparatively low inventory to sales ratios, which should protect their profits during the remainder of economic instability and should allow the companies to become profitable at a lower level of growth later in the year. This group includes home furnishing retailers, apparel retailers and the general merchandise retailers.
Stocks seem to be discounting a soft landing.
We look for the rally to continue a few more months then fail, unless fundamentals improve significantly. The evidence supports continued share gains, but each situation needs to be analyzed independently. The September 1998 cut set off a doubling of tech prices in a year. The fundamentals are more negative today, so gains from here may be more limited. In a soft landing, it pays to buy on the first cut.