Wall Street sees no finale yet to explosive stock rally
Y2K reference made at the end
Friday March 27, 7:26 pm Eastern Time
FOCUS - Wall Street sees no finale yet to explosive stock rally
(Updates to close)
By Pierre Belec
NEW YORK (Reuters) - Wall Street investors are
showing that they've never found a stock they did not
like, pricing the market out of this world.
But as odd as it may seem, the experts say there are still
no signs that the market is headed for an hair-curling
correction.
This week, the Dow Jones industrial average came a
few points short of 9,000 points, just eight months after
breezing through the 8,000 milestone. It ended the
trading period with a loss of 110.35 points at 8,796.08.
Over the last 10 weeks, the Dow has soared more than
1,300 points and is up more than 12 percent for the
year. It is an extraordinary performance considering the
market racked up a gain for all of last year of 1,460
points, or 22.6 percent.
''This is a runaway bull market and it just won't stop,''
said James Dines, publisher of the Dines Letter in
Belvedere, Calif.
''All the traditional methods of measurement --
price-to-earnings ratios and dividend yields -- are
outdated and irrelevant,'' he said.
The market is climbing despite a batch of earnings
warnings from big-name companies such as Intel Corp.
[Nasdaq:INTC - news], Compaq Computer Corp.
[NYSE:CPQ - news], Sunbeam Corp. [NYSE:SOC -
news] and Rockwell International Corp [NYSE:ROK -
news]. Essentially, stocks are reacting positively to bad
news and what was previously seen as bad for the
market is now seen as good.
Dines said that in the 40 years that he has been an
analyst, there has never been such a spectacular market.
The market's ascent is being propelled by iceberg-size
chunks of money that are pouring into stock mutual
funds.
''This money overwhelms every consideration of value,
and there's even the spectacle of Warren Buffett, the
ultimate value investor, selling his Coca-Cola stocks and
buying silver, which proves that we are looking at a
mass psychological phenomena and a stampede of
galactic proportions.''
Last month, Nebraska billionaire Buffett disclosed that
his company, Berkshire Hathaway, had bought 129.7
million ounces of silver since July on the theory that the
precious metal was a bargain after plunging to a low of
$4.20 an ounce last summer.
Mutual fund industry statistics show that great money
flows continue to find their way into mutual funds, which
makes it extremely difficult for most people to be
bearish on the market.
In 1997, net cash flows to stock funds were at a record
$231 billion, topping 1996's high of $222 billion, says
the Investment Company Institute, the
Washington-based mutual fund trade association.
How is this bull market likely to end.?
''It will end in a currency crisis,'' Dines said. ''We came
really close to one late last year when Asia caved in but
the problem brushed right passed us and Wall Street
turned bullish again.''
The fact that the stock market was able to sidetrack the
serious Asian economic problem showed that few things
can possibly stand in the way of a stampeding market,
he said.
''It's what I call the public getting the bit in its teeth and
it's just running,'' he said. ''The secret of this market is
that it has nothing to do with value and today's stock
prices can't be justified.''
Dines believes that a major event could turn the market
psychology around -- a Japanese or European crisis or
the year 2000 computer problem.
''My instinct tells me that this Mother of All Bull
Markets will be followed by the Father of All Bear
Markets,'' he said.'' ''But for now, the market will have
to run its course and the first sign of trouble will be a
speculative fling in low-priced penny stocks.''
Investors have so far concentrated on the high-priced
blue-chip stocks, which would suggest that the rapidly
rising market has still a long way to go.
''Eventually, people will turn to the low-priced stocks
and this will be a sign that the stampede will have a
speculative finish,'' Dines said.
Edward Yardeni, chief economist for Deutsche Morgan
Grenfell, says investors have gone overboard with their
stock valuation.
''I doubt that (corporate operating) earnings will rise 12
percent to $50.78 a share this year from $45.40 per
share last year,'' he said. ''I expect a more modest gain
of 6 percent to $48 a share. If so, then stock prices are
28 percent overvalued.''
But don't look for a correction soon, said Yardeni, who
reckons stocks will stay overpriced for the rest of the
year.
''It could get even more overvalued,'' he said.
''Obviously, I don't see a market top just yet but I still
believe that the days are numbered for this mature bull
market.''
For the week, the Nasdaq composite index rose 34.49
points to 1,823.65. The Standard & Poor's composite
index of 500 stocks was off 3.72 to 1,095.44. The
NYSE composite index of all listed common stocks was
down 2.81 at 569.80.
(Questions or comments on the Stocks-Week Column
can be addressed to Pierre.Belec(at)Reuters.com)
NEW YORK (Reuters) - Wall Street investors are
showing that they've never found a stock they did not
like, pricing the market out of this world.
But as odd as it may seem, the experts say there are still
no signs that the market is headed for an hair-curling
correction.
This week, the Dow Jones industrial average took a run
at 9,000 points, just eight months after breezing through
the 8,000 milestone.
Over the last 10 weeks, the Dow has soared more than
1,300 points and is up more than 12 percent for the
year. It is an extraordinary performance considering the
market racked up a gain for all of last year of 1,460
points or 22.6 percent.
''This is a runaway bull market and it just won't stop,''
said James Dines, publisher of the Dines Letter in
Belvedere, Calif.
''All the traditional methods of measurement --
price-to-earnings ratios and dividend yields -- are
outdated and irrelevant,'' he said.
The market is climbing despite a batch of earnings
warnings from big-name companies such as Intel Corp.,
Compaq Computer Corp., Sunbeam Corp. and
Rockwell International Corp. Essentially, stocks are
reacting positively to bad news and what was previously
seen as bad for the market is now seen as good.
Dines said that in the 40 years that he has been an
analyst, there has never been such a spectacular market.
The market's ascent is being propelled by iceberg-size
chunks of money that are pouring into stock mutual
funds.
''This money overwhelms every consideration of value,
and there's even the spectacle of Warren Buffett, the
ultimate value investor, selling his Coca-Cola stocks and
buying silver, which proves that we are looking at a
mass psychological phenomena and a stampede of
galactic proportions.''
Last month, Nebraska billionaire Buffett disclosed that
his company, Berkshire Hathaway, had bought 129.7
million ounces of silver since July on the theory that the
precious metal was a bargain after plunging to a low of
$4.20 an ounce last summer.
Mutual fund industry statistics show that great money
flows continue to find their way into mutual funds, which
makes it extremely difficult for most people to be
bearish on the market.
In 1997, net cash flows to stock funds were at a record
$231 billion, topping 1996's high of $222 billion, says
the Investment Company Institute, the
Washington-based mutual fund trade association.
How is this bull market likely to end.?
''It will end in a currency crisis,'' Dines said. ''We came
really close to one late last year when Asia caved in but
the problem brushed right passed us and Wall Street
turned bullish again.''
The fact that the stock market was able to sidetrack the
serious Asian economic problem, showed that few
things can possibly stand in the way of a stampeding
market, he said.
''It's what I call the public getting the bit in its teeth and
it's just running,'' he said. ''The secret of this market is
that it has nothing to do with value and today's stock
prices can't be justified.''
Dines believes that a major event could turn the market
psychology around -- a Japanese or European crisis or
the year 2000 computer problem.
''My instinct tells me that this Mother of All Bull
Markets will be followed by the Father of All Bear
Markets,'' he said.'' ''But for now, the market will have
to run its course and the first sign of trouble will be a
speculative fling in low-priced penny stocks.''
Investors have so far concentrated on the high-priced
blue-chip stocks, which would suggest that the rapidly
rising market has still a long way to go.
''Eventually, people will turn to the low-priced stocks
and this will be a sign that the stampede will have a
speculative finish,'' Dines said.
Edward Yardeni, chief economist for Deutsche Morgan
Grenfell, says investors have gone overboard with their
stock valuation.
''I doubt that (corporate operating) earnings will rise 12
percent to $50.78 a share this year from $45.40 per
share last year,'' he said. ''I expect a more modest gain
of 6 percent to $48 a share. If so, then stock prices are
28 percent overvalued.''
But don't look for a correction soon, said Yardeni, who
reckons stocks will stay overpriced for the rest of the
year.
''It could get even more overvalued,'' he said.
''Obviously, I don't see a market top just yet but I still
believe that the days are numbered for this mature bull
market.'' |
