KEEPING FOCUSED ON LONG-TERM GOALS

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

The Vietnam War changed war forever, because it brought the bloodshed into America's living rooms. The 24-hour financial news channels have the same potential to change the look and feel of stock market corrections forever for they too are bringing blow-by-blow coverage of the turmoil in the world's financial markets into American living rooms. What investors need to keep in mind is that this coverage can generate strong emotions. Strong emotions like fear and greed almost always lead to poor investment decisions. Remember, Boris Yeltsin's problems are not your problems. So stay calm, stay cool, stay invested and stay focused on your long-term investment goals. Stock market declines are a normal part of the investing process.

Stock Market Outlook: Will the Asian contagion visit our shores?

The U.S. stock market is experiencing a full-fledged correction. While the major averages are down some 18 percent, the damage beneath the surface is much worse. Through Aug. 28, the average stock listed on the New York, American or Nasdaq exchanges, had fallen 41.4 percent from its 52-week high.

The average bear market this century resulted in a 35 percent decline. While many experts are predicting a bear market, our position is that most stocks have already experienced a bear market. By the time a bear market is officially announced, stocks will likely start heading higher, in anticipation of a recovery in foreign markets.

The Asian flu has spread to places like Russia and Latin America. Global money managers are pulling capital out of countries like Venezuela and Brazil, fearful that the factors that led to Russia's collapse will be repeated in other parts of the world. Commodity prices, which recently hit a 21-year low, have exacerbated the financial outlook of countries from Russia to Mexico, whose economies are more dependent upon oil and agriculture than the United States. Russia's default on dollar-denominated bonds sparked a global financial meltdown, the likes of which haven't been seen since Mexico's debt default in the early 1980s.

While the U.S. domestic economy remains resilient, it cannot be insulated from troubles overseas. The Asian crisis has split our economy into winners and losers. The losers are companies that ship to Asia, or are forced to compete against cheap Asian imports, or whose fortunes are tied to commodity prices. The 10 worst-performing industries in the second quarter included five commodity-related sectors: oil drilling, precious metals, other nonferrous metals, forest products and steel. Three others involved product shipping: marine transportation, railroads and transportation equipment. The winners are companies that are closely tied to the domestic economy, which remains strong. Of the 10 best performing industries in the second quarter, four were retailers and four others also were consumer-oriented: automakers, restaurants, broadcast media and entertainment companies. The underlying strength in the economy has been masked by a few large weak spots. For example, first-quarter earnings for companies in the S&P 500 rose only 3.4 percent. But excluding just two groups, oil and semiconductor companies, operating earnings were up 8.5 percent. More than half of the S&P 500 companies reported an earnings gain of 11 percent, up from 10 percent in the first quarter.

The Economy

Robust growth in the U.S. domestic economy continues to be driven by the U.S. consumer, who is enjoying the best conditions for consumer spending in more than three decades. Incomes are rising, unemployment is at a 30-year low, consumer confidence is near a 30-year high, and falling interest rates make financing that new car or home more affordable than ever. Two-thirds of economic activity in the United States is consumer-related, which has helped offset the impact of the Asian crisis. The other key positive fundamental is low inflation. The combination of cheap imports from Asian countries and lower oil prices should help dampen inflation in producer and consumer prices over the next several months. Low inflation helps the economy because it leads to lower interest rates, more "real" purchasing power for consumers, and, most importantly, it provides flexibility to the Federal Reserve, who may need to lower rates to stimulate the economy if the risk of recession in the United States increases. But there are trouble spots in our economy. The threat of a flood of cheap imports will continue to cloud the outlook for certain manufacturing industries, such as textiles and autos. Falling commodity and energy prices have led to difficult earnings comparisons for the energy sector and basic industries. While analysts expect a sharp rebound in earnings in 1999, investors should proceed cautiously. Prolonged weakness in Asia will most certainly delay an earnings recovery.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.