Summary: There is a surprisingly large gap in the economic outlooks of two of Wall Street's biggest investment firms. Goldman Sachs Group (GS) believes the Federal Reserve's benchmark rate will fall from its present 5.25% to as low as 4% by the end of 2007; JPMorgan Chase & Co. (JPM) sees it rising to 6 percent. Accordingly, Goldman recommends equities, while JPMorgan prefers an overweight cash position as a defensive strategy. Nicholas Sargen, chief investment officer at Fort Washington Investment Advisers in Cincinnati: "It's not unusual for firms to have different views, but the difference in magnitude and direction between Goldman and JPMorgan is unusually large." Goldman believes the worst U.S. housing slump in a generation will force the Fed to cut rates sending stocks upwards; JPMorgan remains bullish on the economy due to cheap credit and falling oil prices, and sees the Fed raising rates to battle inflation.
Related links: • Revenge of the Bonds Bulls: Wall Street Now Views the Fed as Unlikely to Cut Rates • Remaining Bullish, Despite the Storm Clouds • Fed Officials Disagree, But Number of Hawks Growing • When Does the Fed Cut Rates, With the Dow This High?
Potentially impacted stocks and ETFs: iShares Lehman 1-3 YR Treasury Bond (SHY), S&P 500 Index - "Spiders" (SPY), iShares Dow Jones U.S. Total Market (IYY), Vanguard Total Stock Market ETF (VTI), streetTRACKS Total Market (TMW)
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