Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Don Green who wrote (22458)	10/31/1998 12:52:00 PM
From: Giraffe	Respond to of 116762

Cinderella stock market could turn into a pumpkin? (Updates to close) By Pierre Belec NEW YORK (Reuters) - Stocks are moving in fast-forward gear but the experts say it's a Cinderella market. Have investors hitched a ride on a coach that could turn into a pumpkin? Optimism is again in vogue on Wall Street. The Dow Jones industrial average has roared back some 1,000 points after a hair-curling fall of more than 1,800 points in late summer. But the prospect that a slowdown might soon be playing in the United States -- the world's biggest economy is still not catching the eyes of investors. ''This is a very dangerous market,'' Edward Yardeni, chief economist for Deutsche Bank, said. ''Too many things in the world have not been fixed and this flurry of buying in stocks could be a setup for creating a false sense of confidence that the worst is over.'' Yardeni is betting the Dow will tumble to 6,400 in the second quarter of next year. ''It is likely to go even lower by the end of 1999,'' he said. The world's most closely watched index of blue-chip stocks is now up about 7 percent for the year after being down nearly 4 percent at its low point in early September. But the evidence keeps building that the great economic story is drawing to a close after rocketing the Dow by more than 3,800 points since 1995. Three years ago on Friday, the Dow closed at 4,747. Corporate earnings are expected to be the poorest since 1991 as cheaper Asian exports grab a bigger chunk of business away from U.S. companies. Also, U.S. exports are drying up because the weak offshore economies are not importing American products. The worst news is that American consumers, whose spending generates about two-thirds of economic activity, are not happy. Consumer confidence in the domestic economy fell to the lowest level in nearly two years in October, portending a weak Christmas season for retailers. Stocks are bouncing back at a time when central bankers all over the world are cutting interest rates in a desperate bid to head off a global economic crash. The most dramatic move came from the slow-acting U.S. Federal Reserve, which hurried to drop interest rates twice in less than three weeks. Its mission: To keep the contagion from infecting the American economy. Analysts say there's not much the powerful Fed cannot do to keep the economy from catching the flu. The central bank can only hope that by lowering interest rates, it will be able to put a psychological floor under the stock market and preserve the wealth that has been created by the three-year boom on Wall Street. The economies of Asia have toppled like bowling pins since July 1997 and the hard times have also slammed Russia with Latin America at risk. The experts say Europe and the United States could be next. Even sturdy Britain has halved its economic growth forecast for 1999 to 1 percent. James Dines, publisher of the Dines investment letter, said the global economic outlook is grim and the central bankers and politicians will need to act quickly to put out the fires. ''For the moment, the game is being played and the politicians hope that they'll be safety dead by the time the global economy caves in,'' he said. Things could get from bad to worse for Asia if the strong economies of Western and the United States stumble because the ailing Pacific Rim countries would loose the only major outlets that are left for their exports. Why are investors pumping up the Dow? Many investors appear to be running with the herd, confident that the past three years of double digit gains from stock investing will be repeated, despite the erosion of the pillars that have supported the market -- strong earnings, steady economic growth and a strong dollar. One theory is that Wall Street's sages tend to rationalize fear away, which is what they did when Asia started to self-destruct last year. Although the turbo-charged U.S. economy is no longer running on all pistons, some investors are still betting the Fed's policy change might just keep the economy from sliding into recession or at least, slow down. Don Hays, chief investment strategist for Wheat First Union in Richmond, Va., said people have been slow in giving up on their optimism because they can't forget the fantastic economy of the last five years. ''But the unfolding evidence continues to drag forecasts down,'' he said. Early in the year, analysts were expecting a rise of more than 8 percent in third quarter profits but they're now looking for drop of 1.0 to 2.5 percent versus a year ago. The fourth quarter is not shaping up to be a bell ringer, either. ''As the fourth quarter unfolds the damage will be even worse than it was for the third quarter,'' Hays said. ''Remember that the fourth quarter is a very important quarter for the consumer end of the economy. With the Christmas season so important for retailing, and knowing the amazing historical similarity of the progress of the stock market and retail sales, we will be flabbergasted if this Christmas does not turn out to be a real bummer.'' Indeed, there is no more room for any more disappointments. For the week, the Dow Jones industrial average was up 139.81 points at 8,592.10. The Standard & Poor's 500 index gained 4.81 to 1,098.67 and the Nasdaq Composite index rose 77.53 to 1,771.39. (Questions or comments can be addressed to Pierre.Belec(at)Reuters.com)