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A favorable economic environment, low interest rates, low inflation, and moderate economic growth have led to good earnings in the securities brokerage industry industry in 1996. Industry profits are expected to remain high in 1997, although not at the levels enjoyed in 1995 and 1996. Merrill Lynch and Company Inc and Morgan Stanley and Company Inc are good stocks for the next three to five years, but the industry as a whole is volatile.

Profits for the securities brokerage industry remained high during the 3rd qtr of 1996, even though they were not as good as in the 2nd qtr of 1996. The international movement to free-market economies, globalization, and the increasing investment activity of the baby-boom generation are long-term favorable trends for the securities industry. Although earnings and share prices are volatile, this industry is timely for the 1999-2001 period.

The securities industry is performing well in 1995 with strong underwriting, acquisition and merger advisory work, and record trading. There is a large business backlog at the end of the 3rd qtr of 1995, but earnings will not be as strong in 1996. Through the end of the decade, however, securities firms will have above average revenue and earnings. Charles Schwab, Merrill Lynch, and Morgan Stanley are among better investments.

Improved stock-market conditions and falling interest rates in the 2nd qtr of 1995 have helped securities industry earnings. These stocks have outperformed the market since the 1st qtr. Underwriting of equity and debt, as well as merger and acquisition activity, has also aided the investment banking side with improved results. Salomon and Lehman Brothers are still among good investment considerations.

Earnings for the securities industry were higher than expected in the 1st qtr of 1995, due to the stable fixed-income market. Stocks are approximately 25% higher than at the beginning of 1995. Investment banking in equities and debt was one of the few depressed areas. Recovery is not complete but market conditions have improved in 1995. Individual stocks must be chosen carefully for investment for the next three to five years.

The securities brokerage industry will continue to suffer reduced revenue as long as interest rates continue to rise, and brokers will find it difficult to convince customers to invest in securities as long as short-term rates remain high. However, if any kind of capital gains tax cut is approved in 1995, the brokerage industry will be among the first to benefit, as companies seek to invest their windfalls.

The securities brokerage industry is expected to have slow growth through Aug 1995, although earnings should improve through the 1997-1999 period. Problems in the fixed-income and equity markets have contributed to the poor performance of this industry's stocks. Slow improvement is expected, spurred by companies' aggressive efforts to acquire control of consumers' assets. Investments in this industry are risky but potentially good in some cases.

The securities industry has posted strong earnings in 1993 that are not likely to be repeated in 1994. Interest rates are likely to remain low in 1994 which will keep profits and revenues strong for securities brokerages although competition may increase. The somewhat minimized potential for long-term gains resulting from a rally in stocks should be considered by investors looking for appreciation in stock prices for this industry group.

A.G. Edwards financial performance has slumped due to retail-investor activity and this situation may persist for months ahead. Th ecompany's high cost structure could pressure its margins and limit investment appeal.