Financial Markets Will Show Growth in 2006 as U.S. Economy's Expansion Continues

Press Release Source: Mesirow Financial Financial Markets Will Show Growth in 2006 as U.S. Economy's Expansion Continues - Forecast Mesirow Financial Chief Economist and Panel of Investment Experts at Second Annual Outlook Event Wednesday December 14, 1:54 pm ET CHICAGO, Dec. 14 /PRNewswire/ -- The U.S. economy's expansion will continue in 2006 and financial markets will show significant further gains, led by strength in equities, hedge funds and private equity, it was forecast today at the Second Annual Outlook Event hosted by Mesirow Financial, a Chicago-based diversified financial services firm. With Chief Economist Diane Swonk leading off, Mesirow Financial's Second Annual Outlook event was attended by nearly 500 clients and reporters at the Westin River North Hotel. The firm's Chairman and CEO, James C. Tyree, moderated the event which also featured market outlooks in the areas of equities, fixed income, hedge funds, private equity, currency, real estate and insurance. -- U.S. Economy (forecast by Diane Swonk, chief economist, Mesirow Financial) "The economy's current expansion turned 4 years old in November, and if recent expansions serve as any guide, it still has a long way to go. Real GDP growth is expected to slacken over the year, ending at 3.4%. The CPI is expected to rise in the first half of the year and then abate as oil prices stabilize and growth slows, ending 2006 at 2.3%. Corporate profit growth will remain in double-digit territory; I expect it to be at 15.5% at year end." Swonk's complete forecast for 2006 can be found in the December edition of her newsletter, Themes on the Economy, found at http://www.mesirowfinancial.com/pdfs...hemes_1205.pdf . -- Equities (forecast by Michael Crowe, senior managing director, Equity Management) "We are forecasting a 10% year-over-year increase in earnings per share and a slight multiple expansion of the S&P 500 for a total of 15% return in 2006. Large caps will outperform small caps and growth stocks will outperform value for the first time in a number of years. Merger and acquisition activity will remain strong and favorable tax treatment will continue to support stock buybacks and dividend initiation and increases." -- Fixed Income (forecast by Steven Luetger, senior managing director, Fixed Income Management) "Volatility in the bond market will increase significantly. We expect the Fed Funds rate to reach 4.75% during the year and end at 4.25%. The 10-year Treasury will end the year at 4.75% and the 30-year will end at 5.25%. Corporate spreads will be range- bound +/- 20 basis points and mortgage spreads will be range-bound +/- 30 basis points. Overall total return for the bond market in 2006 will be in the 3% to 4% range." -- Hedge Funds (forecast by Stephen Vogt, senior managing director, Advanced Strategies) "We are forecasting 9% to 11% returns in hedged equity strategies for 2006, once again dominating returns. There will be select opportunities in hedged credit strategies as some large issuers will default. Multi-strategy portfolios of hedge funds will again show returns in the 7% to 9% range." -- Private Equity (forecast by Marc Sacks, senior managing director, Private Equity) "We do not expect a rebound in the U.S. IPO market for private equity-backed companies. Acquisitions by strategic buyers, or other financial buyers, will continue to be the main exit path for private equity investors seeking liquidity in 2006 for their portfolio companies. Assuming that strong corporate earnings growth and low-cost acquisition debt persist, we expect buyout deal volume to match, or exceed, the estimated $175 billion completed in 2005. We are forecasting $24 billion of new venture capital investment during 2006, representing only a slight increase (perhaps 10%) over 2005 investment levels. We do not anticipate the buyout industry to repeat the estimated $70 billion surge of distributions to investors generated during 2005, but expect that strategic buyers will renew M&A activity during 2006. The coming year will show a moderate decline in new fundraising from the estimated $115 billion raised during 2005 as many of the industry's largest private equity firms have completed their fundraising and will not return to the market until 2008 or beyond." -- Currency (forecast by Gary Klopfenstein, senior managing director, Currency Management) "The currency market in 2006 will be driven by opposing forces. China is moving toward a more flexible exchange rate and the U.S. is fighting the huge twin deficits of budget and trade. These factors are pulling hard to move the U.S. dollar lower -- a 10% to 15% revaluation lower is possible, particularly compared to Asian currencies. At the same, time the European Union is experiencing discord and stagnation and U.S. interest rates continue to rise, pushing the dollar higher. I expect that the euro will reach 1.3 and the dollar against the yen will be 112 during the year." -- Real Estate (forecast by Richard Stein, senior managing director, Real Estate) "Interest rates continue to be a fear for real estate investors. If interest rate increases ramp up too quickly it could negatively impact the real estate market, leading to a correction in cap rates which could result in falling property values. While concern over a nationwide housing bubble continues, we believe that all indications show the housing market is in a state of equilibrium. Despite rising vacancy rates in downtown Chicago, currently hovering around 20%, new office space is in demand by large users. In the next eight months, almost 1.3 million square feet of new space will be added to the market with three more buildings coming on-line in the next several years. Tenants for these new buildings are leaving other downtown office buildings which will perpetuate ongoing high vacancy rates and a tenant-friendly market through 2007." -- Insurance (forecast by Brian Diedrich, senior managing director, Insurance Services) "In the property and casualty market we will continue to see the impacts of the devastating hurricane season. Premiums for commercial property coverage are expected to rise as much as 20% in some areas. We expect premiums in the Midwest to stay relatively flat with modest increases up to 10%. Healthcare costs will continue to rise, with premiums increasing 8% to 15% for mid-size employers. In the homeowners area, I anticipate premiums in the Gulf region to rise 20% to 30% or more with deductibles also increasing as high as 10%.">