Market outlook (from the street) :
More Churning Looks Like the Week's Only Certainty
By Justin Lahart
Senior Writer
1/29/99 6:47 PM ET
January was a pretty good month for stocks, but not nearly as good as it looked like it might be at the close on the eighth.
Jan. 8 was a Friday. Stocks had flown all week and, had it not been for the closing bell, it looked like they would keep on flying. When it closed that day, the S&P 500 was at 1275. For the month, it had already traveled 3.7%.
As it turned out, the index would not top that level until this Friday, January's last day of trading. Which is another way of saying that, for all its rockiness, the market didn't really do all that much for the last three weeks. Not that that's so strange.
"We've had a tremendous move in the market, so this churning is very natural," says Al Goldman, chief market strategist at A.G. Edwards in St. Louis. "People have to remember that this bull started in November of 1990 and it's not a teeny-bopper anymore. My opinion is we're going to go up 2, go down 1 1/4, rest and then go up again."
There is some evidence that stocks are getting ready to run higher. It was good to see the market put together a couple of strong days to close out the month, and it was good to see the highs on the S&P finally get taken out. The incredible strength of fourth-quarter gross domestic product laid to rest investors' slowdown concerns.
Yet breadth figures are still making technicians glum, and people who follow sentiment are bothered to see how bullish investors are. (When lots of folks are positive on stocks, the market may be discounting all kinds of good news while ignoring dangers.) So maybe stock will churn some more.
'There's Nothing to Spoil the Story'
But this churning is no reason to forego buying a stock, points out John Manley, equity strategist at Salomon Smith Barney. "If you like a stock, the question shouldn't be, 'Is the market going to go up?'" he says. "The question should be, 'Is the market going to go down and blow my story?' Since it doesn't look like the market is going to go down, there's nothing to spoil the story."
Manley's belief that the market will continue to hold up pretty well boils down to one thing: Rates are low, and they look like they'll stay low. Historically, there are only two things that can send stocks down in this kind of rate environment: a financial panic or a recession. "While financial panics are almost impossible to predict," says Manley, "they're like euphorias -- they don't cluster together." And given the strength of the economy, it doesn't look like there's going to be a recession.
"Every day is a new record for the length of the economic cycle," says Manley, who notes how the idea that recessions are a thing of the past is working its way into investors' psyches. "It may be that recessions are no longer built into the system any more than depressions were 20 years ago," he says.
When Alan Greenspan and his friends on the Federal Open Market Committee meet on Tuesday and Wednesday, they probably won't be worrying about the possibility of a looming recession. The GDP report took care of that. So much for all those economists who were predicting a slowdown.
"Even if you strip out some of the things that won't persist, the aggregate growth is very healthy," says Mickey Levy, chief economist at NationsBanc Montgomery Securities, of the GDP report. "I think the rate of economic growth is going to moderate, but I think 1999 is going to outperform the consensus again. If you look at the low interest rates, the rapid money growth, the positive impact of lower oil prices and the strong stock market, those are fundamentals that should continue to support healthy growth in consumption."
As for the Fed, don't expect it to move anytime soon. "At this point," says Levy, "the best assessment is the Fed is absolutely on hold." As for which way the Fed will go the next time it changes rates, it's anybody's guess. "There's just as much probability the next move is up as there is that it's down," Levy says.
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