Saturday December 25 12:38 PM ET
Stocks-Don't Bet Your Portfolio on Old St. Nick
By Jan Paschal
NEW YORK (Reuters) - Santa made an early stop on Wall Street, but will his rally hold?
Don't hold your breath, the experts say. This raging bull market has run so far, so fast that it's rewriting history and skewing time-honored market theories.
``The thing that's scary is that so many people are bullish,' said Yale Hirsch, a stock market historian whose company, The Hirsch Organization, publishes the
Stock Trader's Almanac.
He's worried, he said, because most Wall Street analysts polled in a recent survey said they're bullish on the stock market.
``If you believe in the theory of contrary opinion, then run to the hills,' Hirsch said. ``You have to ask yourself: 'What could go wrong?' Greenspan could do it.
But he's not going to do anything for the next month.'
Larry Wachtel, senior vice president and market analyst for Prudential Securities Inc., said, ``I've never been one to take as guaranteed, things like a Santa Claus
rally. But I think we're friendly. The bias is up. You can't tell me we're overextended. We've been overextended for awhile. There's lighter volume at the end of
the year, so it's easier to push stocks around.'
Prudential Securities' chief technical strategist Ralph Acampora is predicting the Dow Jones industrial average will climb to 13,500 to 14,000 in the year 2000. He
believes the Nasdaq could rise to 4,800 to 5,000. And he sees the Standard Poor's 500 index at 1,700 to 1,800.
And Hirsch, despite his concerns, said, ``It looks to me like the market's going to keep moving up.' He expects the Dow to hit 12,500 in April, mostly because
``we're in such a liquid market. There's just so much money around with these index funds. Vanguard's (the No. 2 U.S. mutual fund) about to edge out Fidelity
Magellan.'
On Thursday, the stock markets' last trading session before Christmas, the Dow hit a new intraday high of 11,443.07 and then cooled off a bit to close at a new
record of 11,405.76, up 202.16 points from Wednesday. For the week, the Dow is up 148.33 points, or 13 percent.
For the year, the Dow is up 24 percent.
The technology-driven Nasdaq composite index jumped above 4,000 for the first time ever, hitting an intraday high of 4,001.63. The Nasdaq retraced a few
steps, but closed at a new record of 3,969.44 points, up 32.14 points. For the week, the Nasdaq is up 216.31 points, or 6 percent.
So far in 1999, the Nasdaq is up 83 percent. What's more, the Nasdaq has soared 180 percent since Oct. 8, 1998, when it hit a low of 1,419, after the Russian
currency crisis and the near collapse of the hedge fund, Long-Term Capital Management.
And the Standard & Poor's 500 stock index also hit a new intraday high of 1,461.44 and closed at a record of 1,458.34, up 22.35 points. For the week, the S&P
500 is up almost 3 percent. For the year, the S&P 500 is up about 19 percent.
A Santa Claus rally usually begins in the last five trading days of the year and carries over into January's first two trading sessions, setting the tone for the market
for the year.
``The S&P is up an average of 1.7 percent (per year) as a result of the Santa Claus rally, going all the way back to 1952,' Hirsch said, referring to the effect that
the seven-day rally usually has on the S&P 500. He coined the expression 'Santa Claus rally' 25 or 30 years ago.
There have been some off years, of course, he said, noting that ``'90, '93 and '94 were the only losers going back to 1985.'
With Y2K just a week away, what could happen?
``If something terrible goes wrong in the world ... some terrorism might cause havoc,' Hirsch said. ``You've heard of Y2-chaos, haven't you?'
The flip of the calendar to the year 2000 from 1999 is extra cause for trepidation because of the so-called Y2K bug, which could cause computers to be unable to
tell whether the year ending in ``00' is 2000 or 1900 -- and consequently trip up air travel, phones, electricity, banking services and the settlement of
stock-market transactions.
Or something could happen ``just like in 1990,' Hirsch said. ``Would we have had a bear market if Saddam Hussein did not go into Kuwait?'
Prudential's Wachtel said he believes ``there will be some Y2K disruption,' which could stop Wall Street's holiday party temporarily in the early days of the new
year. But he doesn't think there will be anything cataclysmic, like some have predicted.
Hirsch also said he's nervous because ``there's such volatility. The market could turn on a hair.'
The river of cash running down Wall Street is so deep and so green that the stock market couldn't help but have a Santa Claus rally in December 1999.
``Wall Street firms are giving out $13 billion in bonuses. There's a lot of money going into people's pockets at this time of year. Maybe that's why we've always
had the Santa Claus rally. But the market's going up so sharply.'
The Federal Reserve, as expected, left interest rates alone on Tuesday -- Fed Chairman Alan Greenspan's Christmas present to investors -- and the market
rallied, Hirsch said.
``These are tremendous markets,' he added.
Wachtel agreed, pointing out that the seasonal flow of funds is driving this latest surge in stocks.
``November, December, January, that's when there's the bulk of the money flows. That's why we're so strong. We've got money flows and last-minute tax
selling. We've been in an up trend since Oct. 26,' he said.
The stock market benefits from last-minute tax selling, in which funds and investors sell the stocks they've lost money on -- to offset, for tax purposes, previously
taken capital gains -- and then turn around and buy more stocks, some at bargain-basement prices. That, in turn, drives the market up some more.
``We won't see a moonshot like' on Tuesday, after the Fed announced it kept rates steady and stocks jumped for joy,' Wachtel said. ``But the trend is friendly.
We're all enjoying good gains. Some have spectacular gains. All (on Wall Street) are in a good bonus situation.'
The stock market's mood right now is so euphoric that no party poopers are allowed -- not even the Treasury market. At Thursday's close, the yield on the
benchmark 30-year bond reached 6.49 percent -- a level not seen since September 1997 -- and ``stocks aren't blanching,' Wachtel said.
Still, the sound of money isn't necessarily a soothing one for Hirsch and others who have wrestled with a bear market more than once in their lifetimes. Again, his
caution comes back to the overwhelming power of stock index mutual funds.
``You don't really have a free market,' Hirsch said. 'Index funds are blind. When money gets put into market capitalization, it goes to the top. If something is
heavily weighted in the S&P, then that much more money goes into the S&P. It's not fair, but it happens.'
And, ``if things got worse and people wanted out, the market would go down,' Hirsch said, recalling 1974, when the Dow plunged in the wake of the Arab-Israeli
war, the OPEC oil embargo and the ``Saturday night massacre' when then-President Nixon fired two top aides during the Watergate crisis.
``The price of oil skyrocketed; it affected the economy of the world for the next eight years. So there are things that can override the stock market, things that
are beyond your control.'
For the near term, Prudential's Wachtel thinks there will be a reality check in January and early February.
``In the high-performance technology stocks -- the Oracles (NasdaqNM:ORCL - news), Microsofts (NasdaqNM:MSFT - news) and Qualcomms (NasdaqNM:QCOM -
news) -- a lot of capital gains will be postponed until mid-January. There have been enormous gains and then there will be some profit-taking.'
After that, Greenspan and his merry band of Fed policy-makers will rain on Wall Street's parade, in Wachtel's opinion.
``They meet again Feb. 1 and they'll certainly pull the trigger,' Wachtel said. ``They'll only go 25 basis points.'
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