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To: Jan Crawley who wrote (26044)	11/15/1998 2:16:00 PM
From: H James Morris	Respond to of 164684

BLOOMBERG NEWS November 15, 1998 NEW YORK -- Don't be fooled by the stalled indexes or talk that the Federal Reserve is finished cutting interest rates. Stocks are headed higher, according to some of the most influential investors and analysts around. These tentative bulls say it's irrelevant that profit and economic growth appear to be slowing or that much of the world is in recession. As long as individual investors continue to pour money into the U.S. market, share prices are going up. "The public's back in the game," says Steven Leuthold of the Leuthold Group, a Minneapolis-based firm that provides research for institutional investors. "We think the market will reach new highs." That's a startling prediction from someone who's made the case since 1994 that stocks are dangerously expensive. Leuthold says stocks are still too dear, but it doesn't matter. "The public doesn't care about valuations," Leuthold says. "The public only knows that the stock market is the best place for their money." About $6 billion flowed into the U.S. equity funds in the week ended Monday, according to Trimbtabs.com, a research group based in Santa Rosa. The week before, $5.1 billion went into the same funds. In contrast, investors withdrew a net $1.6 billion from stock funds in the week ending Oct. 5. The recent inflows helped the S&P 500 surge 17 percent since Oct. 8. The Nasdaq composite index is up 30 percent since then. In the 12 weeks preceding Oct. 8, the S&P 500 fell 19 percent and the Nasdaq tumbled 30 percent. "People have been schooled on buying on the dips," says Peter Havens, head of investment management of the Bryn Mawr Trust, which oversees $2 billion. "We keep wondering when that will stop." Byron Wien, a market strategist for Morgan Stanley Dean Witter & Co., wrote last week that institutional investors who attended a conference in the Bahamas "seem comfortable with the notion of a rising market near term in spite of earnings difficulties." The money managers, Wien says, were "quite upbeat about the near-term prospects for the major world markets, especially the United States." The less immediate concern is that stocks are still expensive. While Leuthold predicts the Dow will surpass 10,000 next year, he says the U.S. market is "radically overvalued." His calculations show the S&P 500 trading at 28.8 times "normalized" earnings, which take into account the past 18 quarters plus two quarters of estimated earnings. That's the highest price-earnings ratio for the benchmark index since 1957. The median P-E is 17.3. "The fundamentals won't make a difference for a while," Leuthold says. "But when the public love for stocks grows cold, as it always does, it's going to be a long way down."<b/> For the past week, stocks retreated. The S&P 500 fell 1.3 percent, the Nasdaq declined 0.5 percent and the Russell 2000 index of small stocks fell 2.7 percent. The Dow fell 0.6 percent.