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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Frederick Langford who wrote (13386)	11/1/1997 10:21:00 PM
From: AlienTech	Read Replies (1) \| Respond to of 50167

Booby Traps Ahead for Anxious Stock Investors? By Pierre Belec NEW YORK (Reuters) - Wall Street got its first look in 10 years of what an adverse stock market is like and it was not a pretty sight. Now, investors are agonizing about whether to step in or stay out of this dangerous stock market. The experts warn that there may be booby traps ahead. It was the week that investors put on their helmets and ran for the bomb shelters as a meltdown in Hong Kong stocks sent shockwaves across time zones, knocking the wind out the markets in Asia, Europe and New York. The Dow Jones industrial average's hair-raising turns went into the record book. It had its largest point loss ever Monday at 554, beating the 508-point plunge in the Oct. 19, 1987 crash. The next day, the index turned around, racing up 337 points, setting its biggest gain. The sell-off, which pruned nearly half of the market's gain for the year of 25 percent, drove the Dow below the important 7,000 level from a record high of 8,259.31 on Aug. 6. On Friday, the index closed up 60.41 points at 7,442.07. For the week, it was down 273.33 points. For investors who had been accustomed to a nothing-could-go-wrong environment, the market turmoil was a wake up call after 3-1/2 years of Wall Street stock rewards of more 20 percent per year. Asian stocks had been inflated by a generous amount of market speculation, particularly in Hong Kong, where stocks had soared nearly 500 percent in the past 7 years. The Hong Kong market has now fallen an eye-popping 40 percent in two months. The bloodbath in Asia changed the face of the global economy and threatened to end years of consistently good corporate earnings for U.S. multinational companies, which have helped fueled one of the longest running bull market in history. But while the market has started to stabilize, small investors have been stepping up to the plate, convinced that they are witnessing just another of those setbacks that have proved to be buying opportunities in the past. The experts say that the first rally is often the wrong one to buy and the concern is that stocks may still have to take another swoon before setting on a steady upward course. Often the real buying opportunities are found in the second stage of a market's correction. History has shown that a serious drop is often followed by a bounce of some 50 percent on bargain hunting, that eventually leads a retreat to new lows. Typically, the bargain hunters' strategy is to pick a low point in the market, hoping for quick profits. But these short-term traders are gamblers and they are quick to exit the market whenever things don't go their way. Hugh Johnson, chief investment officer for First Albany Corp., said the market is not out of the woods yet. "The sell-off had a significant shock on the financial system of the world and what remains to be played out is the economic fallout, which will be felt very slowly over the next 6 to 12 months," he said "No one knows exactly how much Asia's growth will slow but we just don't know the amount of the damage," Johnson said. "We don't have the bill yet." It will all come down to earnings. "The question is how much is it going to shave from U.S. corporate earnings next year ... and worth tracking is what people do with their earnings estimates. That really is crucial." Edward Yardeni, chief economist for Deutsche Morgan Grenfell, said that the stock market is too dangerous, and he prefers bonds. "From a risk reward standpoint I like bonds more than stocks at this time," he said, citing concern the Asian turmoil could have a domino-effect on the global economy. But he felt that the upside of the Asian "mess" was that it will keep the Federal Reserve from raising interest rates, and it may even encourage the policy makers to lower interest rates. Yardeni said that any interest rate hike would "worsen and globalize" the chaos in Asia. "The Asian crisis is very bullish for bonds over the next 6 to 12 months because it will make the central bank very reluctant to raise interest rates," said Yardeni. He expects the long-term bond interest rates to drop to 6 percent by year-end and possibly slip to 5 percent next year, lowering the cost of car and home mortgage loans. On Friday, the Nasdaq composite index closed up 23.20 points at 1,593.61. For the week, it was down 57.31. The Standard & Poor's index of 500 was up 10.94 points at 914.62, and stood 27.02 lower from a week ago. The American Stock Exchange index was up 4.91 at 675.75, and was down 25.43 on the week. The NYSE Composite index lost 5.31 to 481.14. For the week, it was off 14.63 points.