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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (35957)	12/23/1999 8:56:00 PM
From: KM	Read Replies (1) \| Respond to of 99985

The Coming Week: Even Bulls Can Fret About Bum Steers By Justin Lahart Associate Editor 12/23/99 7:27 PM ET It's not the coming week that Wall Street is worrying about these days so much as the coming year. The amused, befuddled look the huge run in tech stocks put on many strategists' faces has given way to more worried countenances. Even strategists who have been forthrightly bullish (and remain forthrightly bullish on stocks' long-term outlook) are concerned that the move has become not just overdone, but speculative in nature. "I think we are building the speculative bubble that a lot of people have been talking about for a long time," said John Manley, equity strategist at Salomon Brothers Smith Barney. Investors are "playing by rules I wasn't taught. For the first time in 10 years, I'm thinking it might end badly." "I've been at this for 30 years, and I don't remember a time when I've seen this level of euphoria," said First Albany chief investment officer Hugh Johnson. "I think at some point there will be a correction or an adjustment, and it may be severe. That's not a bold or irrational forecast." Yet it is one thing to say the market has gotten frothy, and another to say when it will hit its top. It is almost an axiom that narrow, momentum-based rallies overshoot and come in. This has been the biggest narrow rally in Wall Street's history, but nobody really knows at what point we are in it or when it ends. Manley reckons things come in "somewhere" in the first quarter. Johnson keeps an overweighting in tech stocks in his portfolio, but reduces his position in a stock whenever it exceeds 7%. So he's trimmed a little Oracle (ORCL:Nasdaq - news), a little Sun Microsystems (SUNW:Nasdaq - news). When people talk about what could make big-cap tech come in, they usually talk about the Federal Reserve. Stocks' reaction to this past week's Federal Open Market Committee meeting, wherein committee members left their bias unchanged but made it clear that they had no problem with hiking rates at the February meeting, left some observers aghast. "It's like your mother-in-law calling from the airport and saying her flight's delayed, but it's leaving in 20 minutes," said Manley. "And you shout, 'She's not coming!'" (Manley made clear that he likes his mother-in-law very much. Moreover, she has a very good sense of humor.) Many now reckon that the Fed has become increasingly alarmed by the rise in stocks. In the release that accompanied its Tuesday decision, the FOMC said, "At its next meeting, the Committee will assess available information on the likely balance of supply and demand, conditions in financial markets and the possible need for adjustment in the stance of policy to contain inflationary pressures." That bit about financial markets is "a euphemism for what's happening in the equity arena," said Bill Sullivan, chief money-market economist at Morgan Stanley Dean Witter. One of the more interesting things about the year-ahead outlooks various economists have given this month is that so many forecasts depend on what happens in the equity markets. "If you think the market's overvalued and that there will be a significant correction, that has a significant effect on your forecast," saidBarclays Capital senior economist Henry Willmore at his firm's confab. The corollary to that is that the equity market is having a significant effect on the economy now. "Everybody's working, and everybody who has tech stocks is watching them go up," said Don Fine, chief market analyst at Chase Asset Management. Those good times are helping consumers who have not shown any sign of flagging. "This Fed will keep on tightening until the economy slows down to what they think is a noninflationary pace," said Fine. "Even though they have a neutral bias officially, unofficially these guys are getting ready for another tightening." --------------------------------------------------------------------------------