Stock market stays hot Dow tops 7,000

Record for index defies predictions of slower year

February 14, 1997|By Bill Atkinson | Bill Atkinson,SUN STAFF

The longest-ever bull market shows little sign of letting up as the Dow Jones industrial average, the nation's most closely watched index of blue-chip stocks, raced to its highest level ever, breaking 7,000 points yesterday.

The Dow, which closed at 7,022.44, has risen more than 1,000 points in just four months. It took the Dow about 14 months to go to 6,000 from 5,000 points.

"I'm surprised," said Robert G. Freedman, chief investment officer with the John Hancock Funds, a Boston-based mutual fund company with $24 billion in assets under management. "Most people didn't think it [7,000] would happen in February. I though it would happen later on in the year. But I don't think it's bang-o, 8,000 right away."

Yesterday's 60.81-point burst pushed the Dow above the 7,000 mark and followed a 103-point climb Wednesday.

Many industry experts have been predicting that the stock market will muddle through 1997, and not come close to matching the double-digit returns in 1995 and 1996. But already, the Dow is up nearly 9 percent this year.

The same factors that have propelled stocks over the past two years are pushing today's market higher: low inflation, low interest rates, strong corporate profits and a continuous flow of money into stock mutual funds.

In January alone, an estimated $24 billion poured into equity mutual funds, according to the Investment Company Institute, the Washington-based association that represents the mutual fund industry.

Baltimore-based T. Rowe Price Associates Inc. saw more than $1.3 billion move into its funds in the first month, a spokesman said.

Greenspan boost

Another boost of sorts came from Federal Reserve Chairman Alan Greenspan, who testified yesterday before a House banking subcommittee but didn't comment on the stock market. Several weeks ago, he wondered aloud whether "irrational exuberance" had taken hold of Wall Street, and stocks plunged, albeit temporarily.

"People feel he gave an all-clear signal to the market," said Richard Cripps, a Legg Mason Inc. strategist.

Cripps said there are signs that the market's run is a healthy one, because smaller stocks are starting to benefit from higher prices rather than just blue-chip stocks.

"It has broadened out. A healthy market needs to broaden," rTC Cripps said. "I guess this market, you would have to say, could go another 10 to 15 percent this year."

Yesterday's broad-based run helped push the Nasdaq composite index -- home to many large technology companies -- up 11.74 points to 1,370.70.

The Standard & Poor's 500 stock index was up 9 points to close at 811.82 points, its 14th record of the year.

The Russell 2,000 stock index of small capitalization stocks closed 368.18, up from 365.40 Wednesday.

Baltimore's brokerage companies took part in the market's leap. Shares of Alex. Brown Inc. jumped $3.375 to close at $61; T. Rowe Price Associates Inc. closed at $49.25 a share, up $3.375; and Legg Mason shares added $1.625 to $49.125.

Confounding

The market's surge has confounded many experts, who expected a significant drop long ago and argue that investors are paying too much for stocks.

"I really do think you have entered La-La Land," said Richard H. Fontaine, portfolio manager of Towson-based Fontaine Global Growth, a mutual fund that invests primarily in mining stocks.

Fontaine said investors have "detached" themselves from buying stocks that are fairly valued. And many continue to pour money into blue-chip stocks, which they see as safe bets, while they avoid smaller companies.

"Therefore, the market is reacting to a flow of funds that is driving a very narrow segment of the stock market to almost unbelieveable levels," he said. "It is very difficult to tell when the mania will end. They are just buying."

Robert Brown, chief market strategist with Ferris, Baker Watts Inc. in Baltimore, said the "market is pricey and everybody knows it, but they don't seem to care." Brown said the Dow's move past the 7,000 threshold is nothing more than a psychological boost for investors, but it will bring in more of them who expect a big payday.

He said a broker called him recently to complain that a client was angry because his portfolio was returning 18 percent, while the portfolios of his friends were in the 20-percent range.

"The market is always subject to greed and fear," Brown said. "We are in the greed part."

John Hancock's Freedman contends that stock prices are fairly valued and that the market will continue its climb. He said S&P 500 companies are trading at an average 17.5 times their earnings. "My sense is that we are not terribly overvalued here," he said. "With no real signs of inflation, the valuations are still very reasonable. If the market gets up in the 19-times-earnings range, then we are in for some kind of correction."

Pub Date: 2/14/97

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