Municipal bonds could be good stabilizer

The Ticker

November 04, 1998|By Julius Westheimer

If Wall Street's gyrations worry you, should you buy tax-free bonds?

"Municipal bonds could become the hottest dance at the bond-buying ball," says Financial Perspectives. "With the stock market in turmoil, many stock-heavy investors are buying bonds to stabilize their portfolios.

"Municipals are appealing now because everyone, especially foreigners, are devouring U.S. Treasury bonds, driving up Treasury prices and pushing yields to their lowest levels in decades.

Municipals are now bargains compared to Treasuries."

The article points out that a recent five-year Treasury bond yielded about 4.2 percent, while a five-year tax-free AAA-rated municipal bond yielded 3.75 percent. This tax-free yield is nearly 90 percent of the Treasury yield -- an unusually high percentage.

Another way to lessen worries, as Better Investing points out, "is to buy stocks that relieve stress -- pharmaceuticals." Here are 10-year performance figures: Pfizer Inc., up 1,120 percent; Warner Lambert Co. up 950 percent; Merck & Co. Inc. up 570 percent.

Over that same period, the S&P 500-stock index advanced only 250 percent.

CONTEST UPDATE: When the Dow Jones industrial average ended October at 8,592.10, the closest of 3,000 year-end forecasts for the Ticker's annual contest were Dan McClure at 8,592, Alice and Warren Tomlinson at 8,590 and Bernard Sher at 8,590.

WHICH WAY NOW? Of about 25 predictions I recently read, 75 percent were gloomy. Samples of both sides:

"Today's market shows reduced risk but is not yet showing signs of a significant reward." (Salomon Smith Barney)

"Long-term fundamentals are shaky at best. This recent advance could be a bear market rally." (Trader's Focus)

"We'll look back on the spasm of 1998 as a kind of cramp. Rub it out, shake it off and move on down the track." (Aeltus Weekly)

"There may be enough time to make some hay before the next big storm." (Equity Fund Outlook)

Pub Date: 11/04/98

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