They are betting that, with Federal Reserve Board interest rate cuts, the economy will pick up in the second half of the year and that the stock market will at least stabilize.
Legg Mason Inc., a Baltimore-based brokerage and asset management company. "I am not buoyant, but I think things will be a little easier" this year.
Mason welcomes any and all interest rate cuts by the Fed and is hoping that the government will, indeed, trim taxes under the George W. Bush administration. He also believes that the collapse of many new economy stocks could be nearing an end. "Hopefully, it will stabilize," he said. "My overall guess is the market ... will be better" than it was in 2000.
Others are hopeful, too.
George A. Roche, chairman and president of T. Rowe Price Associates Inc., a Baltimore-based mutual fund company, sees a "challenging year."
"I expect a dramatic slowdown in profit and growth for the overall economy," Roche said. But, he said, there could be a slow start in the first half of the year and then easings by the central bank could help things "get better in the second half."
Money managers and brokers have lived in a near utopian state since 1995 as investors poured money into stocks and the economy steamed ahead.
The closely watched Dow Jones industrial average, which tracks 30 large and important companies, more than tripled from 3,838.48 on Jan. 3, 1995, to a high of 11,722.86 on Jan. 15, last year. And the Nasdaq surged nearly seven-fold from 743.58 on Jan. 3, 1995, to a high of 5,048.62 on March 10, last year.
But the Dow stumbled and the Nasdaq collapsed last year as scores of Internet start-ups went bankrupt or simply closed their doors. Stocks of some of the best known companies - Microsoft Corp., Dell Computer Corp. and AT&T Corp. - plunged as the economy slowed.
Some blamed the abrupt change on six interest rate increases by the Fed that began in June 1999, designed to slow a then-racing economy. Others pointed to the long deadlock in the 2000 presidential election.
"The market hates two things - uncertainty and high or rising interest rates,"
said Thomas Schweizer Jr., head of the private client division at Deutsche Banc Alex. Brown in Baltimore. Brokers had a fine 2000. Average daily volume on the New York Stock Exchange rose to a record 1 billion shares, up 28.7 percent from 1999, while average volume on the Nasdaq stock market soared 61.2 percent to a record 1.7 billion shares. Such volume swells commission revenue.
Schweizer, who oversees 415 brokers, said the Alex. Brown brokerage operation had its best year ever, although business fell off as 2000 came to a close. Private client accounts shot up to $100 billion from $79 billion a year earlier, and the group hired 45 brokers.
"We had a terrific year," he said.
In fact, the industry is on track to post record profits when it reports final numbers early this year, said Michael Flanagan, a brokerage analyst at Philadelphia-based Financial Service Analytics.
He expects the 273 firms that are members of the New York Stock Exchange to post earnings of $20 billion for 2000, up from $16.3 billion a year earlier.
But it won't be so easy to make money this year, he said.
"For the first time in seven or eight years, I feel more comfortable in suggesting the possibility of a downturn in the brokerage business," Flanagan said. "There are a lot of storm clouds on the horizon."
Schweizer also doesn't expect the year to be as strong, even though he plans to hire another 50 brokers.
"I just think you are going to have a rocky time here," he said.
While brokers thrived, investment bankers struggled to take companies public in the volatile market. Deutsche Banc Alex. Brown, the most prolific investment banking firm in Baltimore, led 47 deals last year, raising $5.5 billion. But that was down from the 52 companies it took public in 1999, which raised $7.7 billion, according to CommScan, a New York-based investment research company.
Performance suffered, too. The companies Brown took public returned a negative 7 percent last year, compared with a return of 157 percent in 1999.
Many of the executives believe that the Bush administration will be an ally. The new president advocates increasing the amount of money investors can put into retirement plans. That would serve Price and Legg Mason well. Both are expanding their 401(k) businesses. Bush "tends to favor things which are very favorable for saving and investment, and that is very good for our industry," Roche said.
Whether the economy sags or strengthens, Legg Mason and Price plan to expand their money management businesses overseas.
Last August, Price snapped up the remaining 50 percent interest in Rowe Price-Fleming International that it didn't own from its British partner, Robert Fleming Holdings Ltd., for $783 million.
"We are not looking for any big merger overseas, but we are looking for organized growth by hiring people and expanding the business," Roche said.
Legg Mason acquired Perigee Inc. last year, Canada's ninth-largest institutional investment manager. It had bought Johnson Fry Holdings PLC of London in 1999, to establish a foothold in Europe's rapidly growing mutual fund industry. "We are trying to grow the business at all levels with probably a little more emphasis on global expansion looking for global distribution in a broader market," Mason said.
The mutual fund industry's performance suffered last year because of the stock market's volatility. But that didn't stop investors from pumping a record $291.4 billion into stock funds in the first 10 months of the year.
Mason and Roche hope that the money continues to flow as investors seek the help of professional money managers.
"I think this is still a very good long-run business," Roche said.