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MERRILL LYNCH EXPECTS CHALLENGING YEAR AHEAD FOR U.S. STOCK MARKET; FOLLOWED BY RESUMPTION 0F LONG-TERM UPTREND IN 1995

 NEW YORK, Dec. 6 /PRNewswire/ -- The U.S. stock market may be in for a challenging year as the current bull market experiences an interim respite in 1994, followed by a resumption of its long-term uptrend in 1995, according to forecasts issued today by Merrill Lynch's top research professionals at the firm's annual Global Economic Forecast Press Conference.
 Global investment opportunities for 1994 include U.S. municipal bonds, basic industrial, capital goods and communications stocks and emerging markets in Asia and Latin America.
 Meanwhile, the U.S. economy appears to be well-positioned for a period of moderate growth with low inflation and low interest rates that could extend several years, while economic growth worldwide is expected to move at a moderate pace overall.
 U.S. Stock Market
 According to Chief Market Analyst Richard T. McCabe, "The present bull market cycle, which began in October 1990, is showing many signs of age that suggest 1994 may be a more challenging year for investors. The market's sector leadership pattern appears to be deteriorating as many of the original or primary leaders of this bull market, such as consumer growth, defensive, financial and secondary stocks have recently declined or faltered whereas the laggard sectors of recent years, basic industrial and capital goods stocks, such as machinery, engineering and construction, paper and forest products, and steels have started to rally. Although the market's recent selective and sporadic strength could continue into the early part of the year, the market could then be susceptible to an interim cyclical decline during 1994 to set the stage for a resumption of its underlying long-term uptrend in 1995-1996."
 Mr. McCabe also warns that market index volatility, which has been unusually low for the last two years, could increase. Therefore, he said, "Investors may find it advantageous to adopt a dollar-cost averaging approach in their investment programs, particularly with regard to some of the concept groups of the 1990s, such as, the communications, media, telecommunications and entertainment companies which have been in favor in 1993."
 Dollar-cost averaging is a strategy in which investors purchase shares of a security at regular intervals in order to smooth out the effect of price fluctuations in the security.
 U.S. Bond Market
 Fixed Income Strategist Martin J. Mauro expects that the Federal Reserve will tighten its policy modestly in 1994 and that, coupled with no significant rise in inflation, should result in a flatter yield curve, with short-term yields rising and long-term yields steady or down slightly.
 "We believe the 30-year Treasury bond offers good long-term value at a yield of 6-1/4 percent or higher. That would translate into an inflation-adjusted yield of more than 3 percent, which is relatively attractive by historical standards. However, the municipal bond market remains the most undervalued of the fixed income markets, and is likely to outperform the Treasury market in 1994. As for corporates, we prefer debt and preferred shares of certain domestic banks," said Mr. Mauro.
 Investment Strategy
 From an asset allocation point of view, Chief Investment Strategist Charles I. Clough is carrying a below average bond position into 1994, a strong emphasis on cyclical stocks and a modest cash position. His benchmark guidelines are 6O percent stocks; 30 percent bonds and 10 percent cash, while his guidelines for aggressive investors are 60 percent stocks; 25 percent bonds; and 15 percent cash.
 "The U.S. manufacturing sector promises to be strong well into 1994," predicted Mr. Clough. "Manufacturing and trade sales are growing more rapidly than production, signaling coming gains in production, restructuring is allowing corporations to throw off cash and cyclical earnings momentum is likely to be the primary stock market drive. If money and credi ?growth remains moderate the stock market could discount further cyclical earnings gains in 1995."
 According to Mr. Clough, "Low interest rates and the growing need to technologically update the capital stock suggests a sustained capital investment cycle. What is unique about this business expansion is that it is occurring without strong growth in money and credit."
 The chief investment strategist also notes that an excess savings is likely to "migrate to developing countries, particularly Asia and Latin America where financial markets are expected to show greater returns."
 U.S. Economy
 Chief Economist Donald H. Straszheim expects U.S. economic growth in 1994 to exceed 3 percent after starting off slowly in the first half of the year. "While recovery in the U.S. from the 1990-91 recession has been sluggish, out economy is well-positioned for a period of moderate growth, with low inflation and low interest rates that might extend several years.
 "Sharply falling oil prices are good for growth and low inflation, housing looks good, consumers are borrowing again and early indications show Christmas sales will be strong," Mr. Straszheim added. "Corporate earnings are likely to rise at a double-digit rate in 1994 as companies' attention to cost cutting and productivity gains remains impressive."
 The chief economist also noted that inflation fundamentals remain good with plenty of excess capacity and little upward pressure on wages, and that while major health care reform legislation is expected in 1994, it is likely to be less intrusive, less costly and less threatening to the financial markets than earlier feared.
 The Global Economy
 Turning to the global economic forecast, William P. Sterling, Manager of International Economics, said, "The recession in the Group of Seven nations is bottoming out, but recoveries in Japan and Europe are likely to have the sluggish look and feel of the previous U.S. recovery. We expect growth of around 3 percent in the English-speaking countries next year to be offset by growth rates of 1 percent or lower in Japan and continental Europe, resulting in a sluggish overall growth of about 2 percent for key industrialized nations."
 According to Mr. Sterling, growth in the five major Latin American countries should average in the 4 percent to 5 percent range, while growth in the 10 major Asian economies, excluding Japan, should slow to just under 7 percent next year.
 Speaking from Hong Kong, Sanjoy Chowdhury, Chief Economist, Asia Pacific Region, said, "This deceleration will mainly be due to expected slower growth in China as investor focus in 1994 shifts temporarily from Greater China to Southeast Asia and India.
 Senior Economist Nicholas Kwan predicted that the Chinese economy may be slowing but should register real growth of about 8-9 percent in 1994. "An austerity program introduced in 1993 should have helped Beijing to curb rising inflation pressures. But there is a risk that the economy may reflate well before proposed economic reforms help bring down inflation," said Mr. Kwan.
 Meanwhile, the Japanese stock market is expected to "bottom after additional fiscal stimulus measures and steps to ease the problems in the financial system are adopted," said Jeff Bahrenburg, Japan Equity Market Strategist.
 In Europe, economic performance is expected to be mixed. According to Senior European Economist Stephen Waite, "Economic conditions in western Europe are improving gradually. However, the western German economy is likely to remain weak due to excessive labor costs, financial burdens of unification and industry exposure to low-cost Eastern European competitors. Growth prospects appear to be brightest in the United Kingdom, while recoveries in France, Italy, Spain and Benelux are expected to be weak."
 As for what investors should look for in Europe, Mike Young, Director of European Investment Strategy said that "despite the recent volatility in European markets, we believe that the case for the bull market remains intact. Our preferred markets are France, Spain, the Netherlands and Norway, while recommending underweight positions in Italy, Sweden and Switzerland."
 Chief international Equity Strategist Thomas R. Robinson, who was unable to attend the event, issued comments distributed at the press conference. Mr. Robinson said, "1994 may be a challenging year for global equities. The global bull market appears to be intact, but to obtain the kinds of returns we have seen in many markets globally may require much greater selectivity going forward. European equities are likely to afford the most attractive opportunities in the year ahead. Longer term, we continue to be committed to the emerging markets of Asia and Latin America."
 This year's press conference involved a three-way interactive television hookup, via satellite, between New York, London and Hong Kong. Reporters at each location were able to question research professionals in other cities through the video teleconference, coordinated by the Merrill Lynch Video Network.
 -0- 12/6/93 R
 /CONTACT: Fred Yager of Merrill Lynch, 212-449-7355/
 (MER)


CO: Merrill Lynch & Co., Inc. ST: New York IN: FIN SU: ECO

TW-LG -- NY016R -- 0876 12/06/93 14:42 EST
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