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Sunday, Aug. 30, 1998
Predicting a crisis
Analysts say stock market's bulls haven't been bearish enough
By BRUCE MEYERSON
Associated PressNEW YORK -- No pain, no gain.
It may sound sadistic, but many stock market experts think the pinch you've been feeling in you're portfolio hasn't been painful enough.
Buried beneath Wall Street's avalanche from July's record highs, they say, is a die-hard spirit that only delays the sheer panic -- and prolongs the agony -- that this market needs to find a bottom.
``I'm concerned that many holders of equities have never been through a sustained downward fall in stock prices,'' said Ned Riley, chief investment officer at BankBoston, noting that only a minority of today's mutual fund investors began investing as long ago as 1990, when the Persian Gulf crisis sent the market plunging.
That was the last ``bear market'' decline of at least 20 percent by the Dow Jones industrial average, which through Friday had fallen 1,268 points, or 13.8 percent, from the record of 9,337.97 set on July 17.
``The mindset is quite firmly entrenched that you can't lose buying every dip of the market, and that even this dip will produce higher prices over the long term,'' Riley said. ``Once we have that mindset removed or altered a bit, we will have a bottom.''
There's no denying that the global backdrop has grown rather gruesome in recent weeks with an economic and political crisis erupting in Russia just as the Asian fiscal crisis was diving headlong into a second year.
In addition to squeezing profits at American and European companies, those crises have sapped investor confidence in Latin America and other emerging markets, threatening to destabilize developing nations around the world.
The benefit to all this is that all that money fleeing overseas markets has to go somewhere, and more often than not it finds its way to the relative safety of these shores.
But it's just that type of thinking that worries many market strategists who think investors, charmed by years of outsized gains, remain just too willing to look on the bright side of everything.
``People are not focused on the fact that this has been a very expensive market for some time and that prices were (reflecting) a utopian environment,'' Riley said. ``Wall Street is still adamant in its denial of the profit problems out there, and that masks a critical flaw in the bullish thesis.''
Many of these problems, of course, were responsible for the market's convulsions last October, which led to the Dow's record 554-point plunge on Oct. 27 -- and sparked the biggest one-day gain of 337 points on Oct. 28.
There have been plenty of sudden downturns during the $1.688 trillion disappearing act that's been playing out on Wall Street since mid-July, but there's been no powerful turnaround as yet.
``Our previous selloffs have ended with big bang and that's what missing here. When you have these declines, the worst day is usually the last day,'' said Bob Dickey, managing director of technical market analysis at Dain Rauscher Wessels in Minneapolis. ``A steady decline is what you do not want to see, as opposed to a wash-em-out kind of move.''
A ``wash-em-out'' move might take the Dow to the lowest level since last fall, which isn't entirely unreasonable since at best, most companies are hardly earning more than they were back then. Even with this summer's steep losses, the Dow still is struggling to hold above 8,000 rather than 7,000 as it was last fall.
``What used to be a ceiling is now a floor,'' said Dickey, suggesting that trying to value stocks on the basis of profit expectations has little to do with when the market's slide might end.
``Valuations are still high enough that I don't think they're a valid measuring tool today,'' said Dickey, noting that traditional yardsticks such as the ratio of price to earnings still are well above historical averages. ``What you need to do is shake the tree and get rid of all the people who think the market will come back. They have to give up.''
And what might bring about that capitulation? Maybe a little reading material will do the trick.
``Next week, the statements go out for the month of August for most mutual fund companies,'' said Riley. ``It may be that looking at the losses incurred for the month of August will basically give them a wake-up call.''
On Friday, the Dow fell 114.31 points to 8,051.68, extending this week's loss to 481.97 and shrinking this year's gain to 1.8 percent. At the July peak, the Dow was up 18.1 percent.
The Standard & Poor's 500 fell 15.45 to 1,027.14 on Friday, bringing its loss for the week to 54.10. The technology-heavy Nasdaq composite index fell 46.73 to 1,639.68, closing the week 157.93 lower.
In other trading Friday, the New York Stock Exchange composite index fell 6.70 to 512.12, down 28.70 for the week; the American Stock Exchange composite index fell 6.41 to 602.58, down 49.30 for the week; and the Russell 2000 index of smaller companies fell 7.56 to 358.54, down 37.10 for the week.
The Wilshire Associates Equity Index -- which represents the combined market value of all NYSE, American and Nasdaq issues -- ended the week at $9.418 trillion, off $617.47 billion from last week. A year ago, the index stood at $8.702 trillion.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web