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Shares Rally Just Might Have Legs: U.S. Stocks Outlook (Repeat)
Bloomberg News
November 29, 1998, 2:31 a.m. PT
(Repeats Friday's story for Monday newspapers)
New York, Nov. 29 (Bloomberg) -- The rally that pushed U.S.
stocks back to record levels last week for the first time in
more than four months shocked investors with its speed. Even so,
there's plenty of fuel for further gains in the next several
weeks, money managers say.
Stocks deserved to rebound from the July-October swoon that
sent the Dow Jones Industrial Average down 19 percent, given
that the economy is likely to avoid a recession in 1999 and
corporate profits will grow modestly, these investors say.
What's more, in October, a net $46 billion poured into
money-market mutual funds, the Investment Company Institute said
this week.
That's ''money just sitting on the sidelines waiting to be
put into use,'' said Francis Gannon, who oversees $1 billion as
head of large-company stocks at SunAmerica Asset Management.
''We're having a buying panic, and it's going to continue to
move this market higher into the year-end.''
For the week, the Dow average rose 1.9 percent to 9333.08,
after reaching a record 9374.27 on Monday, its first high since
July 17. The Standard & Poor's 500 Index closed the week at a
record 1192.29, up 2.5 percent. The Nasdaq Composite Index
rallied 4.6 percent to 2016.44, its first record since July 20.
The market shut down Thursday for Thanksgiving and closed
at 1 p.m. New York time today, three hours earlier than usual.
The best-performing stocks in the holiday-shortened week
were takeover targets such as Union Camp Corp., up 31 percent,
and Mobil Corp., up 14 percent, and Internet shares such as
Books-A-Million Inc., which increased 11-fold. Oil drilling and
equipment shares fared the worst, as analysts predicted that the
price of crude could fall below $10 a barrel in months ahead.
The Russell 2000 Index of small stocks, up 2 percent for
the week, is still 18 percent below its record, set April 21.
Dow 10,000 Seen
The rally could have enough steam behind it to push the Dow
industrials to the 10,000 milestone, said Charles Reinhard, a
market strategist at ABN Amro Inc.
In the past, a record in the market shortly after a decline
of 10 percent or more -- which is what happened this week -- has
been a bullish signal, Reinhard said. This has happened seven
times since 1929, and the market gained an average of 7.1
percent more after making a new high, he said.
The next peak on average occurs within three months after
the market fully recovers from its loss, said Reinhard. A
similar gain now would put the Dow industrials just over 10,000
by the end of February, he said.
That's the good news. The bad news is that that next peak
usually is followed by a ''meaningful pullback,'' Reinhard
warned. A decline that follows historical precedent would take
the Dow industrials back down to 7400 after it hits the 10,000
mark, he said.
Investors may be enjoying gains now at the risk of bigger
losses next year or, as Reinhard put it, ''We're picking up
nickels in front of steamrollers.''
After their fast comeback, stocks now may be slightly
higher than their fair value, said James Weiss, deputy chief
investment officer for stocks at State Street Research &
Management, which oversees $51 billion. Still, any time the
market is at about fair value, any good news is likely to push
it higher, he said. ''This upswing has been fundamentally
driven,'' said Weiss.
A short pullback of 5 percent to 6 percent could happen at
any time, Weiss said. Investors might suffer temporary scares
about the economy slowing too much or earnings worsening.
The Concern: Earnings
Gannon, of SunAmerica Asset, is buying shares in companies
that he thinks will be able to churn out double-digit gains in
revenue and earnings next year. He recently bought shares of
Time Warner Inc. and Comcast Corp.
This investor says the overall market is close to fair
value, given the outlook for earnings, interest rates and the
economy. He said he expects a decline in stocks in 1999. ''There
is something coming that is going to disconnect this market,''
he said. One possible culprit: weaker-than-expected earnings in
the first half of next year.
The same people who bailed out of stocks last summer, when
Russia defaulted on its debt and many Asian countries were
struggling with recessions, may help boost the market in the
weeks ahead. They're afraid of being wrong again, investors
said.
Since bottoming at 957.28 on Aug. 31, the S&P 500 -- the
stock market gauge tracked by professional investors -- has
surged 24 percent, and now is up 22 percent for the year.
Investors jumped back into stocks with a vengeance as the
Federal Reserve cut short-term interest rates three times to
ease the strain on financial markets caused by economic problems
in much of the world.
Opportunity to Seize
One money manager who has posted even better returns than
the S&P 500 said he'll be buying if the market does slide any
time soon.
''If I own something that goes down more than the market
but fundamentally it's doing well, it gives me an opportunity to
add to the position,'' said Stephen Humphrey, manager of the
$700 million Chase Vista Select Large Cap Growth Fund.
Humphrey's fund has returned 31.2 percent so far this year,
trouncing the S&P's 24 percent return including dividends.
He has done that by loading up on familiar names. His
largest holdings are drug stocks Warner-Lambert Co. and Pfizer
Inc., Dell Computer Corp., and Tyco International Ltd., which
makes products ranging from fire protection equipment to medical
devices. Now he's buying Motorola Inc. and Hewlett-Packard Co.
Dell has been the best-performing stock in the S&P 500 this
year, rocketing up 207 percent. Still, even if the computer
business slows, Dell's method of selling directly to customers
gives the company a huge edge, he said.
''On a global basis, they probably only have 4 or 5 percent
market share,'' Humphrey said. ''There's plenty of room for them
to continue growing, even as the industry slows.''
--Phil Serafino in the New York newsroom (212) 318-2358/dp/ltk |
