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Economic Outlook and Market Strategy from A.G. Edwards ST. LOUIS, Dec. 4 /PRNewswire-FirstCall/ -- Following the dramatic increases in short-term interest rates by the Federal Reserve over the past two years and given the current downturn in the domestic housing market, there's not much question as to whether the U.S. economy is slowing down. The big debate, of course, is whether the country will experience a "hard" landing -- in other words, a recession -- or see the economy merely slow to a modest growth rate and then take off again after a more forgiving "soft" landing. To help investors get a better handle on the hard versus soft landing debate, financial services firm A.G. Edwards (NYSE:AGE) has just released the 2007 outlook report from its Investment Strategy Committee. With insight from a wide range of sources, the report combines viewpoints from the firm's market strategists, economists, analysts and portfolio managers to examine the debate and identify the risks and opportunities the committee sees in the year ahead. Chief Economist Gary Thayer notes that over the past five years, the economy has oscillated between extremes -- in recession or struggling out of it from 2001 to 2003 but then showing strength and expanding at an above- average rate from 2004 through the early part of this year. The Fed has drained excess liquidity from the economy with its lengthy cycle of consecutive rate hikes, and Thayer thinks the most likely scenario at this point is a soft landing between these two extremes. "The Fed does not want the economy to swing between boom and bust," Thayer says, "but that does not mean it could not happen." In addition to the gradual Fed rate increases, which gave borrowers time to adjust to tighter credit conditions, Thayer points out several other factors that may be indicative of things to come. A sharp drop in energy prices in the second half of this year, a halt in the Fed rate hikes once the housing market weakness became pronounced and continued growth in corporate profits have all helped offset other problems and seem to be setting the stage for a soft landing. Turning attention to the stock market, Chief Market Strategist Al Goldman enumerates some of the pressing issues that could possibly turn into stumbling blocks for the soft landing scenario. He says the areas of greatest concern are geopolitical, as Iraq, Iran and North Korea will likely remain very serious problems for our country going forward. But Goldman takes heart in the trends that are currently in place in the economy and says recent history bodes well for the near-term market outlook. "Economic activity has slowed primarily because of the recession in the building industry," Goldman says. "However, the economic trends in place indicate a slowdown rather than a meltdown, and thus, we look for a soft landing in 2007." Goldman notes that the rising market is now 49 months old, compared with the average duration of 25 months for previous bull markets. But he also points out that the current market's advance has been more labored than most, and a couple of years of lackluster growth in the middle have helped increase its longevity. Goldman is looking for an increase in S&P 500 earnings on the order of about seven percent over 2006 earnings, which would predict a target for the S&P of approximately 1472 in late 2007. To give investors a clearer picture of where they should focus their investment dollars, Chief Equity Strategist Stuart Freeman offers several sector picks for the new year. "Based on our expectations for a slower growth economic environment during the first half of 2007, we continue to suggest investors overweight the defensive health care and consumer staples sectors," Freeman says. "However, because more cyclical stocks have already retrenched during the course of the year, our industry group rankings include a larger mix of more cyclical stocks than they did six months ago." Some examples of Freeman's most favored individual industry groups include: energy companies (except the major integrated international names), agricultural products, construction & engineering, health care distributors, building products, water utilities, steel, managed health care, household appliances, and reinsurance companies. For more information about the firm's outlook in these and other areas -- including fixed-income research, currency and debt analysis, geopolitical events, equity and fixed-income portfolio strategies, and securities research -- copies of the A.G. Edwards 2007 Investment Guide are available on the firm's Web site, agedwards.com, or by calling one of the firm's 700 branch offices across the country. About A.G. Edwards Drawn to the firm's client-first philosophy, individuals and businesses have turned to A.G. Edwards for sound advice and access to a wide array of investment products and services that can help them meet their financial goals and objectives. Founded in 1887, A.G. Edwards and its affiliates employ more than 6,500 financial consultants in more than 700 offices nationwide and two European locations in London and Geneva. More information can be found on agedwards.com. How we do business A.G. Edwards generally acts as a broker-dealer but may act as an investment advisor on designated accounts, and the firm's obligations will vary with the role it plays. When working with clients, the firm generally acts as a broker-dealer unless specifically indicated in writing. To better understand the differences between brokerage and advisory services, please consult Important Information About Your Relationship With A.G. Edwards on agedwards.com/disclosures. DATASOURCE: A.G. Edwards CONTACT: Byron Goodrich of A.G. Edwards, +1-314-955-3235, or Web site: http://www.agedwards.com/

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