Dow average nears peak

The Ticker

August 01, 1991|By Julius Westheimer

Edging within 11 points of its all-time high of 3,035.33, the Dow Jones average gained 8 1/2 points yesterday, closing at 3,024.82. And the Dow index now stands 660 points, or 28 percent, above its 12-month low of 2,365.10.

AND NOW WHERE? "The recession isn't over. Corporate insider selling could signal new economic weakness ahead, so keep 60-70 percent of your portfolio in cash." (LaLoggia's Report) . . . "We remain bullish; we received a confirmed 'up' signal in early July." (AIQ Expert System Advisory) . . . "We're not at ease. Conservative long-term investors should be long gone because utilities are weak and margin debt flirts with disaster levels. Mutual fund, pension cash about low as they can get." (Professional Investor) . . . "Bull market is in progress. We recommend that investors ride through corrections; it's more than worth the risk." (Dan Sullivan, The Chartist).

WARNING FLAGS: According to Barron's, July 29, the Dow Jones price-earnings ratio now stands at 22 times trailing earnings vs. 14 one year ago. DJ dividend yield stands at 3.1 percent vs. 3.7 this time last year. S&P 500 stock index shows a P/E of 18 times earnings vs. 16 in August, 1990, and its dividend yield is 3.1 vs. 3.4. Today's levels historically signaled "caution" or "danger" areas for Wall Street.

LOOKING BACK (1): "You need not be a 'market timer.' Investors who went into the market at its peak every year for the past 20 years (investing, say, $5,000 in the stocks of the S&P 500 index on the peak day each year) would have seen their $100,000 investment grow to over $388,000. The two keys to investment success: investing regularly and patience." (Moneypaper, July).

LOOKING BACK (2): "Low price-earnings stocks outperformed the S&P 500 stock index in 20 of the last 30 years. Only once, 1971-73, did low P/E stocks underperform the S&P 500 in three consecutive years. Except for that period -- and 1989-90 -- low P/E stocks have not underperformed in two straight years." (Investment Counselors of Maryland).

LOOKING AHEAD (1): Only one person will ever worry about your investments and that person is you. Even if you rely on investment advisers or mutual funds, you still need to keep records and to review them monthly. That doesn't mean you have to make investment decisions monthly. One doesn't check the weather report every 10 minutes; if there's a 40 percent chance of rain, that's accurate enough -- take an umbrella." (American Income Plus).

LOOKING AHEAD (2): McCormick stock is written up in The Patient Investor, July 22: "It's difficult to find anything wrong with McCormick; management is top-notch, earnings on a roll (but) it's prudent for conservative investors to take some profits at current levels. By selling part of your position, you lock in a spectacular 405 percent return since March, 1988."

BALTIMORE & BEYOND: Legg Mason will mail an update on Baltimore-based Environmental Elements and comments on Baltimore Bancorp ("Better-than-anticipated second quarter earnings, difficult second half projected.") and Black & Decker ("Second quarter earnings in line; full year estimate cut on slow economy.") . . . Tomorrow night, locally-produced "Wall Street Week with Louis Rukeyser" spotlights mutual funds . . . Historically, August has been a mildly "up" Wall Street month, rising an average 0.5 percent over 40 years . . . "Writing a will and keeping it up to date can be the most important financial planning you'll ever do." (The Outlook, July 17) . . . "Take advantage of retirement plans, the closest thing to a magic bullet in tax saving." (Tax Hotline, August) . . . "Most major hotel chains offer weekend discounts of up to 50 percent and more; ask for them." (Timely Consumer Tips) . . . "Keep a diary of all tax deductible expenses at or near the time you incurred them." (Edward Mendlowitz, CPA)

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