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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: dealmakr who wrote (34568)	1/8/1999 4:25:00 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 95453

Frank Capiello likes HAL 1999 outlook A crash, no; a correction, probably Valuations worrisome, but good stock buys remain By Frank Cappiello, CBS MarketWatch Last Update: 5:37 PM ET Jan 7, 1999 SAN FRANCISCO (CBS.MW) -- Another new and dramatic high for the U.S. stock market was recorded this week, reflecting better-than-expected retail sales and news of a larger-than-estimated budget surplus for the federal government. A third factor: the inflow of money at investment institutions that occurs at the beginning of each new year. The latter has been more powerful this year than last, since mutual-fund managers' cash levels have reached higher-than-expected levels, forcing fund managers to spend more cash for stocks. Vast liquidity This is another plus for the enormous liquidity in this market, brought on in part by the Federal Reserve's reversal of monetary policy in the early fall. The result was three interest-rate cuts and a lot of money supply being pushed into the U.S. banking system. With all this money around and interest rates still down, making fixed-income securities less attractive, there is not much else to invest in for returns -- neither real estate, gold nor silver will do for now -- except stocks. Has this rise in prices gone too far too fast? Probably. Are valuations really at a point where we can compare them to Japanese bubble valuations of 1989 (just before that market crashed)? No, we're not at those lofty levels by a long shot. But some caution is in order as we witness even more of the lofty valuations accorded stocks like Microsoft (MSFT) and Cisco Systems (CSCO). Two M's and a V This market is built on mood, money and valuations. Mood reflects the psychology of the majority of investors, which is now overwhelmingly bullish. Money represents the liquidity that we talked about earlier. Valuations, of course, are the problem, with price levels (the price one pays for current or future estimated earnings) at levels never seen before. This is worrisome. So what could knock this market off? Literally anything, but most likely one event: rising interest rates (or anticipation thereof). We could get rising interest rates either through bond yields going up (making bonds increasingly more attractive than stocks on a risk basis) or through a Fed decision that there's too much steam in the market -- "irrational exuberance," if you will -- and that the only way to quiet things is by raising rates. Yield signs Surprisingly, bond yields are starting to go up. All you have to do is take a look at where the 30-year Treasury bond was a few months ago and where it is now. More important to watch is the status of Asia and Brazil. As long as both of these areas are in financial trouble, the Fed is likely to keep rates low. On the other hand, should Asia begin to get better quickly and Brazil come off the "critical" list, then the Fed will have a free hand and would probably return to tighter monetary policy. For now, though, that's not a real possibility. So we'll probably go higher and have a market correction somewhere this year, but we think that the bull market will continue. Outlook for '99 Our high prediction for the Dow Jones Industrial Average for 1999 is 10,950. Of course, most people don't buy the market but do buy stocks. For 1999, I continue to like the recommendations made here Dec. 22, which included Intel (INTC); America Online (AOL); AT&T (T); Electronic Data Systems (EDS); CVS Corp. (CVS), the drugstore chain; and Citicorp (C). These stocks are all up since the December recommendation but remain attractive. I'll add a few more to that list: IBM (IBM), Xerox (XRX) and Staples (SPLS). For those who are "chicken bulls" and want to take fewer risks yet receive better-than-average income, the following stocks would seem appropriate: General Mills (GIS); GTE (GTE), which is in telecommunications and in the process of being acquired by Bell Atlantic; and Halliburton (HAL), an oil drilling services company. Frank Cappiello is a regular contributor to CBS MarketWatch. He is president of San Francisco-based McCullough, Andrews & Cappiello, which manages more than $1.3 billion. Search our news archives: (For more options use our Advanced search) TickerKeyword Celebrate the season with Virtual Vineyards holiday gift selections! Discover all kinds of fun, innovative gifts @ sharperimage.com Deals and steals for the Christmas shoppers. Click to shop 2 for 1 - Buy or give any designer tie and get a fun Dilbert tie FREE! Personal Finance There's never been a better time to lock in a mortgage rate at GetSmart! 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