Excerpts from current market commentary by analysts...

Excerpts from current market commentary by analysts at major and regional brokerages, editors of investment newsletters, economists and portfolio managers

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Stephen Roach, economist, Morgan Stanley & Co., New York

In an uncharacteristically defensive speech [last week], Federal Reserve Chairman Alan Greenspan was quick to respond to his critics of the monetary tightening of March 25. In doing so, he was quite explicit in underscoring the analytical and tactical framework that lies at the heart of the central bank’s policy deliberations. That focus, in my view, was very clearly on economic growth--its linkage to the Fed’s inflation objectives as well as its bearing on the interest-rate decisions now facing the monetary authorities.

On this score, Greenspan was quite direct in identifying two sets of considerations that will shape how the Fed plays the growth bet. First, the central bank is still looking for a slowdown [in the economy]. Second, the Fed Chairman came as close as he ever has to admitting that he has been wrong on the growth call [so far this year] and that this mistake has implications for interest rates.

If the economy were to slow as the Fed and the markets are still hoping for, then the central bank might be able to get away with taking out only a little more insurance on the interest-rate side [by raising rates slightly]. Inasmuch as I stand by my view that the economy will continue to grow well in excess of the Fed’s forecast, I remain convinced that there’s far more monetary tightening in the cards than the financial markets are prepared for.

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Louis Navellier, publisher, MPT Review newsletter, Incline Village, Nev.

The stock market has an unhealthy obsession with the bond market, and the [spring] upward trend of interest rates. Apparently, both the stock and bond markets are having a hard time coping with the U.S. economy’s strength. Things are so good that the U.S. government’s budget deficit is plummeting from an unanticipated surplus of tax revenues. Real interest rates after inflation are at all-time highs.

The capitulation that we witnessed [in April] in Nasdaq, especially in the small-capitalization area, is identical to similar liquidity problems that I witnessed in 1990, 1992 and 1994, just prior to the commencement of massive stock market rallies that lasted for several quarters.

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Robert J. Froelich, chief investment strategist, Kemper Funds, Chicago

The announcement of the capital gains tax cut effective date of May 7 by Sen. William Roth and Rep. Bill Archer [chairmen of Congress’ tax-writing committees] could add some volatility to the market [in the near term]. I would caution anyone not to make a decision on selling stocks based on the May 7 effective date. Until the actual legislation is written and adopted, no one knows whenthe effective date will be.

It was the exact same Sen. Roth and Rep. Archer who earlier in the year said any capital gains tax legislation would have an effective date of Jan. 1, 1997.

[Meanwhile] with details of the recent balanced-budget agreement coming to light, it has become very clear that the health-care industry will feel the most pain in balancing the budget. I think that Health Care Reform “Lite” is here. As the legislation drafting process begins, I look for all aspects of the health-care industry to be fair game. First on the list are health maintenance organizations, followed by hospitals, physicians and physician groups, medical equipment providers and even long-term care facilities.

As the process evolves I expect the health-care sector to become extremely volatile with most of the risk being on the down side.

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Paul Kasriel, economist, Northern Trust Co., Chicago

San Francisco Federal Reserve Bank President Robert Parry says that foreign exchange “jawboning” is ineffectual. But the jawing by Japanese Ministry of Financial official Eisuke Sakakibara [last week] seems to have had some effect on the dollar.

A strong dollar has kept global investors interested in dollar-denominated financial assets. It also has restrained the advance in commodity prices quoted in dollar terms. [On Monday] the Commodity Research Bureau futures index [of key commodities] hit a seven-month high.

If the dollar should weaken more, we would expect commodity prices to strengthen more. And we would expect global investors to lighten up on their holdings of dollar assets. So if Sakakibara is not as ineffectual in jawboning as Parry thinks he might be, then the U.S. debt market will be the victim.