An improved economy, low inflation and higher corporate profits paint a positive picture for investors at the start of 1994, but don't necessarily expect to get rich quick in the months ahead.
"This is the normal '90s," Jon S. Fossel, chairman of Oppenheimer Management Corp. in New York, said in his annual list of financial predictions."We should expect to hear words like `moderate,' `average' and `consistent' used to describe the markets, the economy and inflation for the next several years."
In fact, many financial advisers are forecasting few changes from 1993 as they express cautious optimism about the nation's economy.
As a result, "I wouldn't make any major changes in the way I invest," said Jonathan D. Pond, a Boston-based financial planner and author of The New Century Family Money Book. He said he's advising clients only "to do some fine-tuning" in their portfolios.
The general consensus is that the U.S. economy - which is expected to grow nearly 3 percent for all of 1993 - should continue to expand in 1994, with forecasts ranging from 2 percent to 4 percent annual growth.
Interest rates are expected to increase only modestly, even though most economists say the Federal Reserve is likely to tighten credit slightly - around a quarter percentage point - for the first time in five years to keep inflation tamed.
All that should bode reasonably well with stocks and bonds, many economists say.
In the Treasury bond market, economists say short-term interest rates are expected to edge up but remain below 4 percent and long-term rates should stay well below 7 percent. That's good news for borrowers still looking to buy new homes and cars but not so good for savers or those living on fixed incomes.
"With low interest rates . . . you'll continue to see a migration from short-term obligations to longer-duration investments for most investors," said Marshall B. Front, senior executive vice president of Stein Roe & Farnham Inc., a Chicago investment firm.
For stocks, some market watchers expect the Dow Jones Industrial Average to end 1994 at or near the 4,000 mark, which is about 7 percent above current levels, but only after what they describe as a "correction."
"The returns you can expect to get (in stocks) next year are probably going to be in the 8 to 11 percent range, which is more normal than the 15 to 20 percent we were getting in the '80s and early '90s," Front said.
Charles I. Clough, chief investment strategist for Merrill Lynch & Co., predicted even lower returns of around 5 to 6 percent because of "a growing risk of a 10 percent correction."
Naturally, Clough notes, some sectors will stand out more than others.
He says he's particularly bullish on manufacturing stocks such as automakers - "we're regaining the market share we lost to the Japanese in the '80s" - or airlines and steel.
Front says he's forecasting above-average gains in chemicals, technology and gaming stocks, partly because they're undervalued now.
Meanwhile, Hugh Johnson, senior vice president for First Albany Corp., says he's bullish on oil, semiconductors and drug companies. He adds that the market overall should be helped by the continued improvement in corporate profits.
"We should really start to see a payoff to the corporate restructuring occurring over the last 5 years," he said. "It's going to be a stock pickers market."
Financial experts, however, see more opportunities abroad.
"Many overseas markets are where our market was two years ago - poised to move strongly higher as interest rates decline and their economies emerge from recession," said Oppenheimer's Fossel. "From an investment perspective, our past is their future."
Fossel said he expects most European markets - and mutual funds tied to them - to do particularly well because of the ongoing reduction in interest rates there and the elimination of trade barriers.
Latin American countries, especially Mexico, also will get an added boost from the North American Free Trade Agreement, he said.