Dow gains unlikely to continue this year, some experts caution Fear will replace greed, strategist says

January 18, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

This is the year amateur investors could pay for their past success.

They have looked like stock market wizards as the Dow Jones industrial average has jumped by more than 20 percent for an unprecedented third straight year.

But many experts believe 1998 will be a rocky year for investors. They wonder if the amateurs will maintain their hot investment hand and continue to pump money into stocks.

"Greed has been the dominating factor for three years," said Tony Sagami, a former broker, and now strategist with InvestorSquare, an Internet-based mutual fund research company in Austin, Texas. "I think fear will move toward the forefront."

Gil Knight, a principal with Baltimore-based Allied Investment Advisors Inc., which manages $6.5 billion portfolio, agrees the year could be dicey.

"You don't want to be a worrywart, but I do think that next year is going to be a year of volatility," he said. "You are not going to see the gains that you have had."

Even one of Wall Street's biggest bulls, Ralph J. Acampora, is calling for a down year, but his scenario is much more frightening than it has been in the past.

Acampora, head of technical research at New York-based Prudential Securities Inc., believes stocks could fall by more than 20 percent next year. He had been predicting in 1997 that the Dow could hit 10,000 by June 1998. Now, he's calling for it to reach that level sometime in 1999.

"I still adhere to this belief and caution that sometime in 1998 we may witness a bear market, if not in the leading blue-chip averages, at least in some sectors," he said.

If history's longest running bull market dies in 1998, no one can deny it has been an impressive run.

For the first time in its 101-year history, the Dow, the closely watched barometer of 30 blue-chip companies, has risen by more than 20 percent for three straight years. It was up 22 percent in 1997, 26 percent in 1996 and 33.5 percent the year before that.

Many experts believe this year the returns in the stock market will be in the 8 to 10 percent range.

"I think there are more problems on the horizon this time than a year ago," said Douglas G. Ober, chairman of Adams Express Co., a Baltimore-based investment company.

He sees U.S. corporations growing more slowly because of intense competition from Asian countries. Everything from toys to computer parts to automobiles will be affected, he said.

Thailand, Malaysia, Indonesia and South Korea are struggling economically and all have seen their currencies fall, which means dTC the price of the goods they export to the United States are cheaper than they once were.

"My suspicion is we are going to see a substantial influx of goods at very low prices," Ober said.

He sees the price of personal computers falling because many are assembled in Thailand and Malaysia, and Korea will likely export cheaper steel and cars.

"Korean carmakers are going to be shoving cars down our throats," he said.

Adams Express manages about $1.8 billion in two "closed-end" mutual funds, which returned about 26 percent last year, Ober said.

He expects the bull market to lose some steam in 1998. Ober's best-case scenario puts the stock market up 5 to 10 percent in 1998, and his worse-case scenario has it down 15 to 20 percent.

"If you had to pin me down to one figure, I would say down 10 percent," Ober said.

But the stock market has been resilient, and at the end of 1996 many experts were not calling for big gains either.

In 1997, the market surged in the first seven months of the year as the Dow climbed to a high of 8,259.31 on Aug. 6, 1997.

It shrugged off comments in February by Federal Reserve Chairman Alan Greenspan, who warned that investors may have become overly confident that the stock market would continue climbing.

It rebounded from scares of higher interest rates in March and April that sent the Dow down 9.8 percent. And it righted itself after Hong Kong's Hang Seng stock market plunged more 13 percent in late October, which sent the Dow tumbling a record 554.26 points in one day.

Strong, consistent corporate earnings, low inflation, low interest rates and billions of dollars flowing into mutual funds each quarter have propelled the stock market, experts say.

Despite fears that Asia's problems will continue to hurt the market, Jeffrey Applegate, chief investment strategist at New York-based Lehman Brothers, sees the Dow up 18 percent in 1998.

He expects interest rates to fall and profits to rise partly because companies will cut their work force and reduce the number of hours employees work.

"We are bullish," Applegate said.

John Markese, president of the American Association of Individual Investors, a Chicago-based educational organization, expects investors to hang in no matter how volatile the market becomes.

He said they have learned that stocks come back even after 500-point drops.

"The typical behavior is to ride things down," he said. "What will kill them is three or four years of a sideways and down market."

One way to predict the stock market is to track how it does in the first month of the year. Some believe the first five days of trading can give investors a good feel as to how the market will perform.

Knight, the Allied Investment principal, is betting on an early rally as pension and 401(k) money floods the stock market.

"Let's hope January is up," he said.

Pub Date: 1/18/98

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