Investors seek a safe harbor in stormy market

By Jennifer Coogan

NEW YORK (Reuters) - Uncertainty about global growth and the outlook for interest rates has taken a heavy toll on financial markets around the world in the past month, leaving investors wondering if they should overhaul their portfolios.

Take stock investors, for example. Many were hoping for a slowdown in growth that would allow the Federal Reserve to stop lifting interest rates.

But when signs of that scenario presented themselves in last month's surprisingly low payroll numbers, equity players realized they may have gotten more than they bargained for.

Job expansion may be slowing, and economic growth tempering, but other indicators signal inflation remains stubbornly resilient.

With inflation not showing signs of decelerating, the word "stagflation" -- inflation in a period of low to no growth -- has resurfaced in the investment lexicon.

"What the market is telling us is that the economy is starting to slow, but if you really want to get worried about something, think about inflation with slowing growth," said Rick Campagna, portfolio manager, Provident Investment Council in Pasadena, California. "That's where we get in trouble."

Whether the Fed can afford to pause on rates after 16 increases topping out at 5 percent is among the issues that will be discussed at the Reuters Mid-Year Investment Outlook Summit in New York.

The three-day event, beginning on Monday, features top investment strategists like Bank of America's (BAC.N: Quote, Profile, Research, Stock Buzz) Tom McManus, Tobias Levkovich of Citigroup (C.N: Quote, Profile, Research, Stock Buzz), Prudential's(PRU.N: Quote, Profile, Research, Stock Buzz) Ed Keon and Richard Bernstein of Merrill Lynch. (MER.N: Quote, Profile, Research, Stock Buzz).

Abhijit Chakrabortti, J.P. Morgan Chase & Co.'s (JPM.N: Quote, Profile, Research, Stock Buzz) global equity strategist, who was the most bearish of last year's Investment Summit attendees, returns to Reuters U.S. headquarters to give his views about the prospects for U.S. stocks versus foreign equity markets and other asset classes.

Bear Stearns BSC.N strategist Marianna Kozintseva will address emerging markets, and whether the recent hammering they suffered marks the end of investors' love affair with these riskier assets and their outperformance of developed markets.

How the recent flight to quality affects Treasury yields will be asked of Abby Joseph Cohen, chief U.S. strategist at Goldman Sachs & Co. (GS.N: Quote, Profile, Research, Stock Buzz), who forecasts stocks to outperform bonds in 2006.

Stocks looked set to handily beat fixed income until May 10, when they started their sharp sell-off. Year-to-date, the Dow is up 1.6 percent, the S&P 500 is hanging on by only 0.3 percent, and the Nasdaq is down more than 3 percent. Meanwhile, holders of 10-year Treasury notes have lost more than 2 percent on their investments.

In such a tough environment for equities, companies may seek to buy back their own stock to keep their share prices supported.

With corporations hoarding cash on their balance sheets at record levels, many can afford to, but will some decide to issue debt to finance buybacks?

Reuters reporters will talk to Greg Peters, Morgan Stanley's (MS.N: Quote, Profile, Research, Stock Buzz) chief U.S. credit strategist, and ask him whether that would threaten credit quality.  Continued...