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delayed 20 mins - disclaimer
Friday November 20, 5:16 pm Eastern Time
FUND VIEW - Caution rules after stock rebound
By Cal Mankowski
NEW YORK, Nov 20 (Reuters) - Portfolio managers are increasingly cautious about the next step for the stock market, in part because of the speed of the stunning rebound from Wall Street's dark days of July and August.
Even those who can boast of market-beating returns do not seem complacent.
''I think it's going to be hard to show much in the way of a sustained big move from this level forward,'' said Jerold Stodden, vice president and senior portfolio manager for the Chicago Trust Growth and Income Fund, part of the Alleghany Funds group.
At mid-week the $390 million fund was up more than 23 percent since the beginning of the year.
''I'm just really concerned that we're inflating the bubble,'' said Debra McNeill, co-manager of a growth fund and a select fund for Fremont Investment Advisors. ''When the bubble goes, everybody gets hurt.''
Mark Cunningham, general partner of Platinum Financial Trust, a New York-based hedge fund launched earlier this year, believes the stock market is in a ''precarious balance'' that could tip to the downside when it is ready to break from its recent pattern.
Actually, Cunningham as a rule does not predict market moves but instead uses a proprietary quantitative methodology to develop buy and sell recommendations on U.S. stocks considered most likely to make a significant short term move.
In late July, the methodology gave a bearish signal when it rated 48 stocks as sells and only seven as buys. More recently, the system's buys and sells have been divided more or less evenly.
Through Thursday, the Dow Jones industrial average was up 1,148 points so far this year, or 14.5 percent, while the Standard & Poor's 500 was up more than 18 percent.
The Dow came down 19.2 percent from its July peak as worries about a financial crisis in Asia and Russia spreading around the globe reached a peak. It then reversed to climb back above 9,000 in a fierce rally aided by three interest rate cuts, getting an especially strong lift from the second in the series which caught the market by surprise in its timing.
One reason for the general mood of caution may be that only a few have reaped the rewards of the Wall Street comeback.
Large capitalization growth funds have done better than most other sectors focusing on U.S. stocks, said Scott Cooley, equity fund analyst for Morningstar Mutual Funds. He said these funds hold stocks such as Microsoft Corp. (Nasdaq:MSFT - news), Intel Corp. (Nasdaq:INTC - news), Pfizer Inc. (NYSE:PFE - news), Warner-Lambert Co. (NYSE:WLA - news), Wal-Mart Stores Inc. (NYSE:WMT - news) and Home Depot Inc. (NYSE:HD - news), which have been exceptional performers this year.
Despite the volatility, 1998 has been an especially rewarding year for technology stocks, with the NASDAQ 100, heavily weighted in technology, up 40 percent this year.
Cooley noted that funds focused on a value investing style have lagged this year.
''It hasn't been a great year for the financials (stocks) which are well represented in these funds, and it hasn't been a good year for any kind of commodity producer,'' he said. ''Some managers say the disparity between growth and value hasn't been this great in decades.''
Funds focused on small capitalization issues have also lagged.
Robert Vile, managing director of Trainer, Wortham and Co. and manager of the Reserve Blue Chip Growth Fund, is also invested in large cap growth stocks such as Merck and Co. Inc. (NYSE:MRK - news), Pfizer, Dell Computer Corp. (Nasdaq:DELL - news) and Lucent Technologies Inc. (NYSE:LU - news).
''The technology companies are continuing to show excellent growth worldwide,'' he said. ''Even when your economy is slowing you will have to spend money on technology to stay competitive.''
Gerard Breitner, who advises people how to allocate their money among various fund investments, agrees that a cautious stance is warranted. He is president of Excomp Asset Management, based in New York.
''I don't think this is a spot where folks should be 100 percent equity-invested,'' he said. ''I think you want to have some money on the sidelines.'' .
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Merck & Co Inc (NYSE:MRK - news)
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