Wall Street's rally could be signal of good times ahead Reaching all-time high after plunging for months may be a spark

OUTLOOK

November 29, 1998|By Kristine Henry

The Dow Jones industrial average reached an all-time high Monday after plunging more than 19 percent over four months with fears of global economic uncertainty. Does the rally signal good times ahead or is it simply the calm before the storm? Have the conditions overseas that helped cause the drop really

changed?

Ralph J. Acampora

Market strategist, New York-based Prudential Securities

It's all part of a very strong recovery that's not over yet. Stocks look great. There's too much money on the sidelines that hasn't participated yet.

The drop from July to October had nothing to do with the economy -- it was the world scene. There were some strategical miscalculations when people thought, "Don't worry." We were worried. That's what the whole bugaboo was about. It isn't just earnings or economics that take the market up. It has a lot to do with problems overseas and the (Long Term Capital Management) hedge fund that collapsed. This is heavy-duty stuff, and it spooked the market.

Alan Greenspan on Oct. 15 dropped the rates and said we will do what it takes not to have an international crisis. Japan started to walk the walk, England lowered its interest rates, there was a concerted effort to make the system around the world work.

I don't think that necessarily corrected the problem overnight in Brazil or Indonesia. Sure, there will be repercussions. Brazil hit a couple of speed bumps in the road, we're not naive. But are the powers that be going to keep an eye on it? I sure hope so.

Steve Slifer

Chief U.S. economist, Lehman Bros. in New York

I don't think anybody would have expected the market to rebound by the amount it has. In 1987 it took 15 months for the stock market to get back to its high -- this is off the charts. A rally in stocks is probably legitimate and justified, but almost all traders in our shop seem to think this is overdone.

I think the problems for the most part are still there. The stock markets in most of those countries have improved, but the economic conditions haven't. Everybody is excited about Japan, and it's important -- so goes Japan, so goes Asia. It's fiscal stimulus plan is on and off again. I was just in Tokyo three weeks ago, and people are scared, it's a classic depression mentality. They're worried about their jobs, they've cut back on spending. The more they save, the weaker the economy becomes, and on and on you go. Basically the problems we had in Asia are still kind of there.

What I'm concerned about is what does this (rally) do to business and consumer confidence? Does the consumer get reinvigorated and maintain 5 percent spending? If he does, then more than likely the Fed will have to start to tighten again. Then the market will go down and not up, but I don't know how much I believe that. If you thought with the rally in stocks, business people could rebound and say everything is OK again, then capital spending might not slow. My sense is while consumer confidence could rebound to some extent, business confidence will rebound less rapidly, but it's a guess.

Rob Brown

Senior market strategist, brokerage firm Ferris, Baker Watts Inc. in Baltimore

The S&P 500 is up 21 percent for the year and it's the fourth consecutive year the market was up over 20 percent. It's never happened before, and if you are a money manager, your benchmark is the S&P 500. I doubt if most money managers are up 20 percent over four years.

Those who were left behind have to get back in. The tremendous decline (from July to October) formed a liquidation low. Those who wanted out got out, and then it went back up.

It's about 30 times 1999 earnings now; it's very expensive, and nobody knows what earnings will be in the fourth quarter, much less next year. We probably have enough momentum to challenge 10,000 going into next year. Since no one knows if there will be a second shock from overseas or in earnings, it's really a performance-pressure market at this point.

The economy is still going strong, but you wonder can it be sustained?

The market has discounted a great deal, investors feel prices were discounted, and that now it's back up, and things will get better and the Fed will not allow the nation to go into a recession. That's what the market is saying; it looks ahead six months or a year, but it's not always right.

The worst is behind us, the Fed has acted, foreign markets have recovered off their lows.

The trend is your friend in this business and you don't fight the trend.

Pub Date: 11/29/98

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