Beyond Dow 10,000 Is Uncertainty
Saturday, 13 March 1999
N E W Y O R K (AP)
DOW 10,000 is pretty much a slam dunk; it's what could come after that is
far less sure. The blue-chip index never did make it to five digits this past
week, but many analysts are convinced it's just a matter of time.
On Friday, the Dow average ended 21.09 points lower at 9,876.35. But it
gained 140.27 for the week and hit two record highs, the latest on
Thursday at 9,897.44. It ended 123.65 points shy of 10,000.
The market is being propelled by an extraordinary confluence of powerful
forces that economists assume won't last forever - sustained U.S.
economic growth, low inflation and interest rates.
The trick of investing, of course, is to try to anticipate which trends that
support the market will fade and when, and what will replace them.
"There's no magic in numbers (like 10,000)," said Robert Heisterberg,
market analyst at Alliance Capital Management in San Francisco. "You still
have to look at the fundamentals and determine, stock by stock, what
you're going to do."
The bull market was born in the early 1990's along with a technological
revolution that would make corporations more productive, spark growth,
and keep inflation - and therefore interest rates - low.
Low rates boosted stocks in other ways. They kept the returns on bonds
so low that investors had to choose stocks over bonds if they wanted a
decent return. They kept corporate costs down and profits stable. And
they kept American consumers spending, which fed economic growth.
Added to that were very low prices on commodities, especially oil, which
didn't help places like Texas and Oklahoma, but certainly helped keep
inflation at bay across the country.
"There was an exceptional decline in oil prices and mortgages, which
provided a bonanza for consumers' spending and psychology," said David
Orr, chief economist at First Union Capital Markets Group in Charlotte,
N.C. "That provided the superburner under the market."
Although profits of some U.S. exporters have suffered as a result of severe
economic downturns overseas, the market has actually benefited in some
ways. Cheaper imports to the United States have helped keep inflation and
interest rates down.
On top of all of this is the Internet, which added demand for stocks as
thousands of people began buying and selling shares from their living rooms
for $5 a trade.
The Internet also added to the supply of stocks, as corporations - many of
the same ones that were making online trading possible - went public by
issuing stock, which hyped the market even more.
Corporations around the world sold a total of $237 trillion worth of stock
in initial public offerings since 1992, including 5.69 trillion so far this year,
according to Securities Data Co.
So what could hurt stocks in the future?
Oil prices have already started to rise. So far that has only boosted oil
stocks, but if it keeps up, it's bound to be inflationary, and that could
prompt the Federal Reserve to raise interest rates and stamp out the
roaring stock market, warned J. Marshall Acuff, equity strategist at
Salomon Smith Barney.
Corporate earnings were flat last year, largely due to less demand
overseas. For the Dow to maintain its upward momentum, profits will have
to head back up, said Barbara Marcin, senior portfolio manager at
Citibank Asset Management.
That isn't likely if this Friday is any indication. The market stumbled after
Oracle and Microsoft warned of disappointing sales and Caterpillar said its
profits were suffering.
If earnings flop, then stock prices won't hold up, either, said Richard
Jaindrain, chief investment officer for equity securities at Banc One
Investment Advisors in Columbus, Ohio.
The future for U.S. exporters seems mixed. The Asian and Brazilian
economic crises appear to be improving, but Eastern Europe hasn't jelled,
and Western Europe appears to be headed for some rough sailing.
"It's a combination of good and lucky," Orr said. "Is the United States
really that much better than the rest of the world, or have we just been
luckier? What I would say is, both, but the luckier parts, like lower oil
prices and the paradoxical benefits of Asia's collapse, probably will not
stay with us."
On Friday, the Nasdaq composite index fell 30.72 to 2,381.53, up 44.42
for the week.
The Standard & Poor's 500 fell 3.09 to 1,294.59, after hitting two record
highs last week, the final one on Thursday at 1,297.68. The S&P gained
19.12 for the week.
The NYSE composite index fell 0.13 to 611.54, adding 8.4 for the week.
The American Stock Exchange composite index declined 0.44 to 721.21
but was up 13.8 for the week.
The Russell 2000 index of smaller companies fell 2.70 to 398.38, but
added 0.37 for the week.
The Wilshire 5000 index ended the day at $11.87 trillion, up from $11.6
trillion the previous week. |
