20 DECEMBER 1975, Page 29

Writing on the Wall Street

Charles Stahl

The predictions I made in this column that in 1975 stock prices in the United States would move substantially higher and that the dollar would recover from its weakness and go into sustained strength, came through. The time is ripe to start thinking in terms of predictions for 1976. It appears that we may have more of the same, higher stock market prices and higher valuation for the US dollar in foreign exchange markets. As of this writing, the Dow Jones industrial

average is at 860.67, i.e. 10.3 times the $83.83 aggregate earnings of its thirty component stocks for the twelve months ended last June 30. In a year's time the Dow Jones industrial average increased by 240 points. I believe that one year from now the market will have risen at least another 240 points, which would put it up to well over 1,100, a new all-time peak. This prediction is based not only on higher earnings projections — corporate profits after taxes are expected to increase by 39 per cent — but also on solid growth in the US GNP, which should come close to $1.7 trillion in 1976, a substantial increase over this year's GNP of $1.5 trillion. This would be the first annual increase of $200 billion in the US GNP, a nice contribution to bicentennial ceremonies; but the economic expansion will follow an uneven course, being less vigorous in the fifSt two quarters of 1976 and more pronounced in the second half of the year; also the last quarter of 1975 will show a substantial decline from the 13.2 per cent GNP growth in the third quarter, all of which should be reflected in the stock market, so that before we see new peaits some good opportunities may arise for judicious buying at levels lower than currently.

The 1975 annual inflation rate should be somewhere around 9 per cent, due to higher rates in the

ginning of the year. However the


consumer price index for 1976 should not increase by much more than 6 per cent. In the economic history of the United States, twenty-eight expansion periods were recorded, the average length of which amounted to three years. On that theory, the current expansion which started in the second quarter of 1975 should continue not only through 1976, but through 1977 as well, and maybe beyond. The record also shows that inflation begins to accelerate only towards the end of the expansionary cycle; therefore one may conclude that there is no danger of increasing inflationary pressure before 1977. The unprecedented double-digit inflation in 1974, a recession year, has no historical parallel, and I do not expect a repetition of such an occurrence in the foreseeable future.

Of course the US economic recovery will be followed by recovery in other Western countries, who will be able to sell more of their products to these shores. Consequently, the US trade balance, which this year will show a surplus Of about $11 billion, should narrow. However the balance of payments should remain positive in 1976, thus further strengthening the dollar's standing abroad. 1 do not expect the dollar's upside move in 1976 to equal that in 1975; but the average increase in the dollar's foreign exchange rate in 1976 against other leading currencies should be within the range of 5 to 10 per cent.

And as far as gold is concerned, my prediction made some years ago that it will oscillate between $125 on the downside and $185 on the upside, give or take $10-$20 either way, still stands.

Mr Stahl is President of Economic News Agency and publisher of Green's Commodity Market Comments