Falling interest rates on certificates of deposit are pushing more people into stocks, bonds and mutual funds, but investors might be in for some adventures before the last effects of the recession are felt, executives of three Baltimore brokerage firms told a press conference yesterday.
The presidents of Alex. Brown Inc., Legg Mason, Wood Walker Inc., and T. Rowe Price Investment Services Inc. said that they are seeing growth in consumer-related investment businesses, from mutual funds to asset management, but that some of the growth might have come too soon.
"The market is a little ahead of itself," said James W. Brinkley, president of Legg Mason, Wood Walker, a unit of Legg Mason Inc.
"I don't think we'll have an October 1987, or even an October 1989," he said, referring to steep drops in stocks. "But I think we'll have a correction in the next few months."
Alex. Brown President Mayo A. Shattuck III said that improving corporate earnings will have to lead the way to a stronger stock market, and he is a little worried about that.
"The biggest fear we have is all the third-quarter pre-announcements of disappointing earnings," Mr. Shattuck said. He said that some important companies have indicated their quarterly earnings will be soft.
But Mr. Brinkley believes earnings will turn around next year. "Corporate America really has been slimming down for some time. Keeping inflation down can [also] help earnings."
Bonds present some problems of their own, said James S. Riepe, president of T. Rowe Price Investment Services, a unit of T. Rowe Price Associates Inc. He said that investors who go to roll over their certificates of deposit, only to be shocked at being offered rates between 5 percent and 6 percent, are turning to longer-term bonds because some still pay the higher returns investors accustomed to high inflation and interest rates are used to.
"I'm not saying they're doing the wrong thing," Mr. Riepe said. It's just that investors need to know that longer-term bonds carry more risk of falling in price, he said.
He said T. Rowe is seeing strong growth in both stock and bond mutual funds. But he believes bonds will do better than stocks in the 1990s, while stocks will do better than money-market instruments.
He noted that stocks did much better in the 1980s than they have historically and doubts that will happen again in this decade. "If they do, I'd hate to be around for the next decade," he said.