Wall Street's bull could slow down, but he won't stop

Strength: Asia's recovery and U.S. elections should help keep the stock market robust.

Brokers

January 23, 2000|By Bill Atkinson | Bill Atkinson,Sun Staff

Brokers couldn't be happier. The stock market is racing, investors are trading like never before and the economy is booming.

What's more, the longest bull market in history shows little sign of fizzling out this year, but some experts say it may slow down.

"I think the wind is with it," said Marvin McIntyre, head of the high net-worth group at Legg Mason Inc.'s Washington office.

Richard Sutor, resident manager of A.G. Edwards & Sons Inc.'s downtown Baltimore office, expects the Dow Jones industrial average to hover around 12,000 points by the middle of the year.

"It is incredible," he said. "We are positive" on the market.

"As far as the long-term outlook is concerned, as far as interest rates are concerned, we are going to have another good year for the equity markets," Sutor added.

Why shouldn't brokers be buoyant? The economy is growing, inflation is under control, Americans are working, interest rates are low and the stock market keeps advancing.

It has been the same story for the past five years -- a story that has not only benefited millions of Americans, but has fattened brokers' wallets.

Commission revenue at brokerage firms has grown at a 12 percent average annual rate from 1993 to 1998, said Michael Flanagan, a brokerage analyst at Philadelphia-based Financial Service Analytics.

Eight percent growth would normally be considered robust, he noted. "Historically, this is the strongest six-year period the industry has ever seen. We are talking about winning the lottery two days in a row," he said. "I really look for this growth rate to slow down."

One reason brokers expect to do well this year is because the bull market has steadily moved higher, and has shaken off several sobering downturns with huge rallies.

The Dow Jones industrial average, one of the most closely watched indicators for the stock market's health, was up 25.22 percent last year; 16 percent in 1998; 22 percent in 1997; 26 percent in 1996; and 33.5 percent the year before that.

Even more amazing, the Nasdaq composite index, the barometer that gauges the strength of the technology market, soared 85.5 percent after rising nearly 40 percent in 1998; 21.6 percent in 1997; 22.7 percent in 1996; and 39.9 percent in 1995.

Some experts are quick to point out that such rapid growth can't continue, and investors should look for only 10 percent or 12 percent increases in the market.

"I think we have been saying that for the last six Decembers that things can't get any better, and we have been fooled five out of six times," Flanagan said.

Brokers talk with confidence about the new year, partly because it is an election year, which has typically been good for the stock market.

"Normally, the Fed doesn't raise rates," McIntyre said.

Others say the world economy should improve this year as Asia, Latin America and Europe continue to grow.

Tania Zouikin, chief executive of Batterymarch Financial Management Inc., an overseas investment subsidiary of Legg Mason, said Asia is in the midst of a technology boom."

"Asia is at the frontier of technology, not the U.S.," she said. "We are very confident this will continue. This recovery is for real, these [Asian] markets are for real. They are the frontier markets to watch if you believe in technology."

Paul G. Shea, a financial adviser at Morgan Stanley Dean Witter Corp. in Bowie, expects few problems in 2000.

Shea holds investments seminars at Bibelot and Borders bookstores. He had expected to draw about a dozen people, but he's been getting 40 and 50 people at each seminar.

He thought attendees would mostly be young investors, but people of all ages have shown up, some claiming to have seven-figure portfolios.

"A lot of people are there to basically interview me," Shea said.

"I think people are just so interested in the markets as a whole."

He doesn't expect the enthusiasm to die any time soon.

"People are starved for information," he said. The market "is just a part of people's lives."

But brokers do have concerns. McIntyre worries that too many people are caught up in the stock market and have become traders rather than long-term investors.

"This is the Pokemon market," said McIntyre, referring to the trading cards that are the craze among youngsters. "It has become an obsession. Ten years ago, people didn't talk about money. Now you go somewhere and people will talk about how much money they made.

"It used to be that [to talk about] money was taboo," he added. "You used to talk about your sex life first. Before it was a trophy girlfriend; now you've got to have a trophy portfolio."

Brokers are also feeling pressure from online brokerage firms. Online firms, which let customers buy and sell stocks at a fraction of the cost, have mushroomed to about 160 companies.

These firms have shown traditional brokers that the "average investor can take care of their financial situation online," said Dan Burke, a senior analyst at Gomez Advisors, a Lincoln, Mass.-based e-commerce research and consulting firm.

Aside from cheap trades, online brokerage firms offer clients research reports, stock quotes and news about companies -- so investors can do their own homework.

"Suddenly, the tables are turned," Burke said. "If the adviser is not as intelligent as the client, the client is going to say, 'Wait a minute.' "

A.G. Edwards' Sutor isn't worried about online traders cutting into his business this year. He is more focused on what the market holds, and believes few other ways to invest money are as compelling.

"Where are you going to put your money to get a reasonable rate of return?" he said. "It has been quite a ride."

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