Five Best Stocks for '07

A 5% decline in national average prices could push economic growth down 0.3 percentage points in 2007, Merrill Lynch calculates. That would take U.S. growth down to 2.6% in 2007. (Average U.S. housing prices were still inching upward over the summer, though that trend looks likely to falter soon.)

And there are the still unsolved linked problems of the U.S. trade deficit, a weak dollar and U.S. inflation rates. If the Federal Reserve had to raise interest rates to defend the dollar (a potential danger serious enough for the IMF to give it special mention) or to keep inflation down (if the recent fall in energy prices should turn out to be just temporary, say), it would take another bite out of not just U.S., but world economic growth, the IMF points out.

All the uncertainty isn't on the negative side, however. Lower gasoline prices, if they stick around for a while, could well boost consumer spending a full percentage point in 2007. JPMorgan Chase projects that gas will hit $2.30 a gallon soon, sending fourth-quarter economic growth in the U.S. as high as 3.7%. Most economists are now projecting 3% growth.

So economic growth in the U.S. in 2007 will be down modestly, down significantly, or up from 2006. Pick your poison.

Havens From Headwinds

Macroeconomic trends aren't everything when it comes to investing, of course, but I do like to have the wind at my back when I put my money in the market. Right now I can't tell from which quarter the wind is blowing or how hard the blasts are likely to be.

Which is why I favor a core of big-cap growth stocks for my portfolio in 2007.