Did bull market die and Wall Street miss it?

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NEW YORK (Reuters) - A curious thing has happened. The bull market died in the spring of 1998 but Wall Street still hasn't been told -- at least that's what some experts say.

The headline-grabbing stock market indices -- the Dow Jones industrials, Standard & Poor's 500 and Nasdaq composite -- may be cruising at record highs, but the truth is that many stocks have not kept up.

In fact, a big number of stocks are below the highs made in the rip-roaring days of the 1997 and 1998 bull market.

``The overall market has been in a bear market since April 1998. Yes, that is right -- 1998,'' said Don Hays, chief investment strategist for Wheat First Union in Richmond, Va.

It's a smoke-and-mirrors market.

``With only four technology stocks making up 25 percent of the weighting of the Nasdaq and the media only concentrating on the indices, the 'Stealth Bear Market' is being ignored,'' he said.

``What do you think the headlines would be saying if the major indices were 19.7 percent under the mid-April 1998 highs?'' he asked.

The experts backed up their words with some strong stuff.

Ned Davis Research in Venice, Fla., says the average stock in its 7,736-stock data base has fallen nearly 20 percent since April 1998 -- a virtual bear market for a large number of stocks.

There's more.

Richard McCabe, chief market analyst for Merrill Lynch, found that 23.6 percent of the New York Stock Exchange's common stocks and 22.7 percent of the Nasdaq market's stocks are below their summer-fall 1998 lows.

``The uptrend in the major market indices is misleading because it does not represent what the majority of stocks have been doing,'' he said.

People have been buying the big-name stocks, such as technology and consumer growth companies, in the hopes that the sectors would stand up to the downward pressures on earnings from the economic problems in Asia and Latin America as well as the slowdown in Europe.

``Investors went for the rapid and proven growth companies and ignored the medium and small stocks, which have been underperforming for more than a year,'' McCabe said.

``It's created a new breed of 'Nifty Fifty' -- the group of stocks that did well in the early 1970s when the rest of the market was having trouble,'' he said.

The Nifty Fifty stocks eventually went through a nasty period and they joined the bear market that had been dogging the other stocks since the late '60s.

Was it the smart way to pick stocks?

``It was not the ideal investment,'' he said. ``A good, steady and healthy market is usually one where the vast array of stocks are doing well. But, when it's a narrow advancing market, the risk is the majority of weak stocks will ultimately bring down the minority of strong stocks.''

Some investors may be reacting to the warning signs.

The emotional intensity of the bulls has tapered off over the past few weeks. The proof: The rallies have not generated a lot of new buying interest.

Also, mutual fund investors have reduced their stock holdings at the fastest pace since December 1987. Back then, investors were still running for the exits after the October crash.

The downsizing of stock portfolios started this summer. In July, investors redeemed shares from mutual fund companies at an annual rate of more than 20 percent, according to the Investment Company Institute, a Washington-based mutual fund lobbying group.

And, at the end of July, Fidelity Investment's Magellan Fund, the nation's biggest mutual fund with assets of more than $100 billion, cut its stock holdings to the lowest level in three years at 92.2 percent.

``A reasonable case can be made that what has been occurring simultaneously over the last 16 months is a bull market in a minority of large-cap issues and a bear market in a majority of mid- to small caps,'' McCabe said.

Has the bull market been built on shaky ground?

``There is little doubt, even in those partying 'tunnel vision' minds, that this bull market is being carried by a small pocket of stocks -- mostly big-cap technology stocks,'' Hays said.

The good times have been rolling for the tech sector, which includes International Business Machines Corp. (NYSE:IBM - news), Intel Corp. (Nasdaq:INTC - news), Microsoft Corp. , among others. In fact, the technology sector has jumped 32 percent so far this year, after soaring 72 percent in 1998.

And, while the overall market was off 1 percent in August, the tech sector climbed nearly 6 percent, which explains why the market, on the surface, appears to be in a bull mode.

During the days of the Nifty Fifty, investors concentrated on a select group of stocks with extraordinarily high price-earnings ratios of 40 to 80.

``Their philosophy was to find stocks that had been able to provide consistent annual earnings gains, with the statement that you could buy these stocks at any price and know that in the future, you would be bailed out because of those persistent growth patterns,'' Hays said.

How different are things from the 1970s?

Cisco sells at 70 times projected earnings and Microsoft is at 60 times future earnings.

Hays said tech stocks now make up a huge 24 percent of the Standard & Poor's market capitalization, which is up from 13 percent in 1997. In 1990, it was just 7 percent.

Technology stocks, particularly the Internet group, are in a new era and for that reason, Wall Street has no idea where the P/E limits should be for many of those companies.

After all, the limits of a stock's P/E are largely decided by investors' expectations of earnings growth and risk. In the case of the Internet stocks, the sky seems to be the limit.

America Online (NYSE:AOL - news) is selling at 200 times expected 12-month earnings.

``We believe the next two months will be very chaotic and take those perpetual grins off those who think the bull market is still alive,'' Hays said.

McCabe said the market sell-off could take place in October.

``It has the reputation of being a 'crash' month for stocks but October is also known as a 'bottoming' period because market weakness often sets the foundation for recoveries,'' he said.

``Then, there's the Y2K computer problem, which may provide the market with an excuse for a setback in the big-cap stocks as we get nearer to the end of the year,'' he said.

-- Sysman (y2kboard@yahoo.com), September 17, 1999


the golden calf, grew up to be the golden=BULL.''worshiped by most'' UNTIL the ground opened & swallowed them.--coming soon to a world near you.**IDOL-CRASH**

-- any day know. (dogs@zianet.com), September 17, 1999.

A quote from 1931 about the pre-Crash summer of 1929:



By the summer of 1929, prices had soared far above the stormy levels of the preceding winter into the blue and cloudless empyrean. All the old markers by which the price of a promising common stock could be measured had long since been passed; if a stock once valued at 100 went to 300, what on earth was to prevent it from sailing on to 400? And why not ride with it for fifty or a hundred points, with Easy Street at the end of the journey?

By every rule of logic the situation had become more perilous than ever. If inflation [of credit] had been serious in 1927, it was far more serious in 1929, as the total of brokers' loans climbed toward six billions (it had only been three and a half billions at the end of 1927). If the price level had been extravagant in 1927 it was preposterous now; and in economics, as in physics, there is no gainsaying the ancient principal that the higher they go, the harder they fall. But the speculative memory is short. As people in the summer of 1929 looked back for precedents, they were comforted by the recollection that every crash of the past few years had been followed by a recovery, and that every recovery had ultimately brought prices to a new high point. Two steps up, one step down, two steps up again-- that was how the market went. If you sold, you had only to wait for the next crash (they came every few months) and buy in again. And there was really no reason to sell at all: you were bound to win in the end if your stock was sound. The really wise man, it appeared, was he who "bought and held on."

Time and time again the economists and forecasters had cried wolf, wolf, and the wolf had made only the most fleeting of visits. Time and again the Reserve Board had expressed fear of inflation [of credit], and inflation [of credit] had failed to bring hard times. Business in danger? Why, nonsense! Factories were running at full blast and the statistical indices registered first-class industrial health. Was there a threat of overproduction? Nonsense again! Were not business concerns committed to hand-to-mouth buying, were not commodity prices holding to reasonable levels? Where were the overloaded shelves of goods, the heavy inventories, which business analysts universally accepted as storm signals? And look at the character of the stocks which were now leading the advance! At a moment when many of the high-flyers of earlier months were losing ground, the really sensational advances were being made by the shares of such solid and conservatively managed companies such as United States Steel, General Electric, and American Telephone--which were precisely those which the most cautious investor would select with an eye to the long future.


-- Linkmeister (link@librarian.edu), September 17, 1999.

Of course the question remains: Is this a natural end or did it have anything to do with Y2K? Bull Markets don't go on forever and this one has had a very long run. In the absense of any the predictions coming true about various criical dates presaging Y2K it appears its a natural end.

The second question is: Will there be a Bear Market (when and for how long?) or will it just drift up and down for a while?

-- Mr. X (X@XX.com), September 17, 1999.

So this is good news, right ? There is no "bubble" after all, hence no need for a spectacular bubble burst.

-- Count Vronsky (vronsky@anna.com), September 17, 1999.

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