Wheat First executive is bullish on stocks, recovery

September 20, 1991|By Timothy J. Mullaney

The Dow Jones Industrial Average could rise as high as 3,600 by next Labor Day, and the danger of a "double dip" recession is waning, a leading market forecaster told the Bond Club of Baltimore yesterday.

"We're still on a very normal recovery from the recession," said Donald R. Hays, director of market strategy for Wheat First Securities Inc. in Richmond, Va. "At this point, they're always saying it will be a double dip."

The Dow closed at 3,024.37 yesterday. "We think the [downside] risk in the Dow is less than 100 points" in the short term, Mr. Hays said.

He said that recent reports by the nation's purchasing managers point to a fairly strong recovery, rather than the tepid expansion most economists are predicting. He added that the government's Index of Leading Economic Indicators has risen now for six months in a row and that the economy has never in recent history lapsed back into a recession after the leading indicators moved up for three months or more.

"Is this going to be the first time? I doubt it," he said.

Mr. Hays is more bullish than experts who spoke at two other Baltimore conferences during the past week. Mary Farrell, a PaineWebber Inc. strategist, said Friday that she expects the Dow to move into the 3,300-to-3,500 range, but only because strong exports would help counter the weak performance of the U.S. economy.

And Alex. Brown Inc. President Mayo A. Shattuck said Tuesday that he thinks weak corporate earnings reports for the third quarter, which ends Sept. 30, could push the market lower in the short term.

Like Ms. Farrell, Mr. Hays said the driving force of the bull market he is predicting will be rising corporate earnings.

He said that earnings improved during the first two quarters of the year after hitting bottom in the fourth quarter last year, but the improvement has been disguised by the fact that earnings have been lower than in the first half of 1990. Profits will rise again in the third quarter, Mr. Hays said.

He said the year-to-year comparisons will turn positive during the fourth quarter, when last year's dismal performance will be easy to beat, and the earnings comparisons will make investor psychology more positive.

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