Bull market seen likely to continue


The bull market may be aging, but it still has plenty of kick.

Not even a spate of disasters last year, including the White House sex scandal and Russia's crumbling ruble, could put an end to it. And experts are betting that the longest-running bull market in financial history will climb higher this year.

"We have had such an incredible market," said James W. Brinkley, president of Baltimore-based Legg Mason Wood Walker Inc. "I think the next 10 to 15 years in the world of commerce and business are going to be absolutely incredible."

The run has been spectacular so far.

Since the bull market began in August 1982, the Dow Jones industrial average -- the closely followed index made up such blue-chips as General Electric Co., Procter & Gamble Co., and AT&T; Corp. -- has climbed from the 770-point range to around 9,300 -- a 12-fold increase.

Stunning returns

In the last four years, it has strung together a stunning streak of returns, vaulting more than 16 percent in 1998, 22 percent in 1997, 26 percent in 1996 and 33.5 percent in 1995.

Even stubborn bears have been awed by the run.

"This is the bull market of the century, without any question," said Charles Allmon, an outspoken bear and publisher of the newsletter Growth Stock Outlook.

What will keep the bull steaming along through 1999, experts say, is the same mix that has kept it going this long: low inflation, steady employment, growing corporate earnings, strong consumer spending and billions of dollars being pumped into stocks and bonds by baby boomers who are saving for their retirement.

But while experts are looking for gains this year, they say they won't come without pain. The reason? There are many serious issues that continue to haunt the stock market, and there is a widespread fear that investors have become giddy with profits and are ignoring the warnings.

What are the warnings?

Corporate profits, one of the engines that has helped drive the market, are sagging -- largely because of economic slowdowns in Asia and Latin America.

Japan, the world's leading exporter, is still mired in an economic slump, and it has made little progress cleaning up its corrupt banking system, which is saddled with billions in bad loans.

Consumers are driving the U.S. economy by buying computers, autos and second homes, and there is a question of how long the spree will last.

There is also the potential for widespread computer failures in government offices, banks, air traffic control centers at the start of 2000 if systems aren't reconfigured. "The warts on this bull market are so obvious that everyone can see them, but it keeps on chugging," Don Hays, chief market strategist at Richmond-based Wheat First Union, recently wrote in his daily market commentary to investors and brokers at the company. "It is very obvious that something is rotten in Denmark, and on Wall Street, and in Brazil, and Japan, and China, and Russia, and Eastern and Western Europe."

Too much spending

Allmon agreed that there are problems and worries that consumers are spending too much money and digging themselves further in debt.

"Where is the money coming from to keep this engine of consumer buying going? The consumers are borrowing money to maintain the standard of living they cannot afford. Sooner or later we are going to have one big, massive crunch," he said.

Certainly, investors have been crunched before. During three stormy months -- August, September and October -- the market was slammed by economic catastrophes in Asia and Russia, coupled with the White House sex scandal and the near failure of a Connecticut-based hedge fund.

The Dow, which climbed to 9,337.97 on July 17, slid 19.3 percent to 7,539.09 by Aug. 31, while the Nasdaq composite index plunged 29.5 percent from its July peak to 1,419.12 by Oct. 8.

"There was an awful lot of carnage," said John R. Hill, chief executive of Pinnacle Advisory Group LC, a Columbia-based money management company that handles $130 million in assets. "We had literally an emerging market fiasco for the better part of the year. It just created a lot of stomach knots."

Since then, the stock market has snapped back, and a euphoric feeling has taken hold. The Nasdaq, for example, is up more than 50 percent since its October low, and the Dow is up about 20 percent.

Experts are worried that investors are playing the market like a Las Vegas slot machine.

Internet stocks, such as America Online Inc., Yahoo! Inc. and Amazon.com Inc., have run wild and are pumping up the market with huge price spikes.

Rob Brown, senior market strategist at the brokerage firm Ferris Baker Watts Inc. in Baltimore, refers to this burst of Internet speculation as "tulip.com," recalling the tulip bulb craze in the 1600s that swept the Netherlands and caused the Dutch economy to collapse.

"When you see this kind of thing, it takes away from the fundamentals of the market," Brown said. "People are looking at this as a gaming operation."

Most experts expect the wide swings of 1998 to continue this year.

"I think it is going to be volatile, and kind of tough and ragged," Merrill Lynch's McCabe said.

He expects the Dow to reach 9,500 this month and then fall by more than 20 percent to the 7,500 level in the first three months of the year, and then bounce back to the 9,500 range.

Hill agrees that volatility will reign in 1999, but he expects a wider base of stocks to rise with more small and middle-sized companies increasing their share price. The market has been largely driven by the blue-chip companies.

"It is their turn," he said.

Brinkley, the president at Legg Mason, expects the market to rise 8 percent to 10 percent this year, and he is optimistic as he looks out beyond.

"This is a very good environment," he said. "The U.S. is the leader in technology, we are the only true superpower left the markets are the most dependable and liquid markets in the world."

In short, said Brinkley, "We are blessed."

"I think the next 10 to 15 years in the world of commerce and buisness are going to be absolutely incredible."

Pub Date: 01/24/99

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