FYI...'Riding out those shocks -- These strategists put faith in long run'...
<<By Julie Rannazzisi, CBS MarketWatch
Last Update: 7:06 PM ET Aug 3, 1999 NewsWatch
NEW YORK (CBS.MW) -- It might be hard to get there, but the long-run bull market's prospects still look safe, to hear these strategists call it.
Ralph Acampora, director of technical analysis at Prudential Securities, said Tuesday he still counts himself a long-term "Dow bull" despite his expectation of daunting conditions in one to three months. Looking five to eight years down the road, he said baby boomers will lead a steady flow of investing that should be a huge driving force that allows stocks to withstand a few short-term shocks along the way.
And Alan Greenspan's commitment to keeping inflation low will contribute to the air of confidence bulls like Acampora demonstrate.
Asked if there were any potential obstacles the lengthy bull run, Acampora pointed to interest rates as the only culprit to watch. Indeed, the yield on the 30-year bond, currently at 6.15 percent, is flirting with its highs for 1999.
But Acampora, who addressed the New York Society of Security Analysts, said the upturn in interest rates would have to be dramatic to make him a bear. Stocks will be capable of flourishing with a 7 percent yield on the long bond, but they won't if the upswing takes yields to 8 percent or 9 percent, he said. But the Prudential strategist thinks that's a very unlikely scenario.
"Interest rates and currency markets are the support systems for stocks," said Bernadette Murphy, a managing director at Kimelman & Baird. Both the dollar and bonds are now in a consolidating phase, which means equity prices won't be able to enjoy any major rallies in the near-term.
Sector picks
As the market tests tough waters in the next months, investors will need to concentrate on particular sectors, Acampora said.
Utility stocks have been cause for concern lately along with the deteriorating breadth of the market, which mirrors what took place in early August of 1998 -- just before a market rout. But there's a difference between now and last year, according to Acampora.
"There are places to hide (now)," Acampora said, but it's necessary to be selective. Shares of regional Bell operators such as Bell Atlantic (BEL: news, msgs), for example, are holding up very well, he said.
He's bearish in the short term on the Internet, however, and he makes the case by pointing to the negative performance of stocks like America Online (AOL: news, msgs), EBay (EBAY: news, msgs), E-Trade (EGRP: news, msgs) and Charles Schwab (SCH: news, msgs), the nation's leading online brokerage operator. However, Acampora views this consolidation phase as a healthy one for the sector, which will remove the excesses and will be positive for the long haul.
For now, though "dot.com equals dot.down," Acampora exclaimed.
Murphy says Net stocks aren't done falling. "I'd like to see them stabilize before investing in them," she said.
Alan Shaw, managing director of technical research at Salomon Smith Barney, agrees that a thinning process is currently beginning to manifest itself in the stock market.
"We're more cautious short-term but constructive in the long-term," Shaw said. Rising interest rates and higher commodity prices are both a negative backdrop for the market at present. Shares of consumer staples, for example, are already showing signs of severe erosion, he said.
Large-cap vs. small
In the past year, the large-cap companies captured all the attention with the global profit outlook decelerating and leadership narrowing. But things have changed in the past months with a shift in market leadership and improvements in overseas economies. This kind of environment favors a broader view on the market.
Richard Bernstein, chief quantitative strategist at Merrill Lynch & Co., believes the Russell 200 Index (RUT: news, msgs) of small stocks will come back to life.
It's time to abandon the so-called nifty-50 -- the large caps that have also been the big outperformers in the past year, Bernstein said. "It's a great time to look at undervalued stocks [as well as opportunities] overseas," he said.
Since February and March of this year, mid-cap and cyclical stocks have performed well, and these areas of the market will only gain force in the next year, Bernstein added.
Though the story of the past 18 months has been one primarily of large caps growth stocks -- which appeared to be the only game in town -- Robert D'Alelio, senior portfolio manager of Neuberger Berman's small-cap Genesis Fund, said small-cap value stocks have never been cheaper relative to large caps.
D'Alelio sees excellent opportunities in small-cap utility stocks -- which are witnessing a boatload of merger and acquisition activity -- as well as defense stocks because of their huge cash-flow generation.
"Valuation matters and small-caps are in an excellent position," D'Alelio concluded.
Julie Rannazzisi is a reporter for CBS MarketWatch.>>
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**Even though it may be interesting to see what 'the experts' have to say, I can tell you that I'm not diving into utility stocks <G>...I continue to like the tech sector and feel that we will see a re-bound in the next few months. This digital economy is not going to disappear..!!
Best Regards,
Scott
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