The final six months of 1992 are expected to be better ones for investors, The Outlook, a publication of Standard & Poor's Corp., said Tuesday in its midyear forecast.
"A number of healthy adjustments have been made under cover of an essentially flat market in recent months," according to Arnold Kaufman, editor of The Outlook.Kaufman said several factors -fueling a second-half push could include "a continued low return on traditional cash equivalents, thereby increasing demand for equities and mutual funds."
The editor said "a strengthening leadership position among economically sensitive groups or cyclicals" also could lift stocks.
Leadership is necessary if an advance is to be sustained, Kaufman said.
The Outlook also cited "a lack of urgency in institutional buying that has allowed reserves to build and a sell-off in former favorites, such as the food and drug groups, which has brought these stocks more in line with their fundamentals" as a reason for the possible rise in stocks.
Interest rates, which have been steady recently, are expected to inch upward, the publication said.
"We expect short-term interest rates will start creeping upward in the fall," Kaufman said.
"But the spread between money-market returns and average stock yields, currently the narrowest in 15 years, should not change so significantly as to stem the flow of funds into equities," the editors said.
Kaufman said that momentum ran out after the essentially three-stage 42 percent climb in the S&P 500 Index and the 98 percent surge in the NASDAQ OTC Index beginning in October 1990.
"Stocks have now been consolidating their outsized gains for four months. The longer the base the more synchronized the market becomes, the stronger we would expect the bounce to be," the editor said.
However, there are some potential risks, Kaufman said. "The odd way in which the presidential campaign is unfolding could lead to jittery reactions in coming months."
A larger risk is that the economy will veer from its slow-but-sustainable growth path, the editor said.
The publication said it was forecasting that the S&P 500 Index, currently at 410, will end the year around 440, the equivalent of roughly 3,600 on the Dow Jones Industrial Average. That would be a gain of 7 percent from this point and of 5 percent for all of 1992.
Apparel makers, banks, drugs, paper, retail, software and steel stocks are sectors that are best situated for advancement over the remainder of the year, the publication said.