2,000 by year-end? The Grinches say no

Neither Boesky brouhaha, Khomeini kickbacks, nor contra cash has checked this market's upward flight. Last week, the Dow Jones industrial average stormed to a new high of 1,955.57. It marked the third time this year the Dow has charged to a record above the 1,900 mark. But will this rally have enough oomph to shatter the Dow 2,000 barrier?

Statistically, it's only a few upticks away. One boisterous day of futures-related program trading could easily make the difference. Indeed, there's a ``triple witching'' expiration day due Dec. 19.

Some analysts say the 2,000 mark poses a mental wall to investors.

``It took so many years to break 1,000 on the Dow, I don't think you'll see 2,000 by Christmas,'' says Carol E. Morrow, a market technician at Piper, Jaffray & Hopwood, a brokerage firm in Minneapolis. ``In the next couple of weeks you're likely to see an indecisive market. People will be psyched out by the Dow 2,000 level.''

There are all sorts of economic and financial factors that could conspire to restrain the Dow. Brian J. Fabbri, chief economist at Thomson McKinnon Securities, has a few yellow flags up. He's worried about the Organization of Petroleum Exporting Countries, which is meeting this week and could, he thinks, ``agree to reduce supplies, pushing prices toward $18 per barrel.'' That, in turn, could interrupt or reduce the scope of the bond rally.

Mr. Fabbri also predicts that ``merger mania will end'' momentarily, as it becomes too late to complete deals under 1986 tax laws. ``Fewer deals could take some of the enthusiasm out of the market,'' he says. ``On the other hand, that money may get redistributed'' into a broader range of stocks.

Still, both Fabbri and Ms. Morrow expect the new year to usher in significant new highs.

Blue-chip, interest-sensitive stocks will lead the way, says Fabbri. The economy will slink along through the first or second quarter, he predicts, causing Treasury bonds to slide to ``about 6.5 percent.'' As a result, ``stocks could easily go up 10 percent. In other words, Dow 2,100 to 2,200 in the first quarter.''

Once again, the economic weather vanes have been shifting directions. Last month, business seemed to be picking up. Last week, the Commerce Department's index of leading indicators posted a hefty 0.6 percent rise for October. But economists say the gain was misleading, noting that the strength came from financial, not production, components of the index. New-home purchases were also off in October. And retailers reported soft sales in November.

``We're seeing very little indication of economic strength. At best, we're muddling along,'' Fabbri says. Thus, he holds with a growing opinion that the Federal Reserve will cut the discount rate again to juice the economy.

He expects a cut in January or February. With a lot of year-end tax-inspired spending or saving, he thinks, the Fed will wait ``to get some harder numbers in the first quarter before making a decision.''

Also, Fabbri thinks that, to avoid currency gyrations, the Fed might wait to coordinate with a West German rate cut. The economy is softening there, too. But Bonn is likely to wait until after the elections in early January to take stimulative steps.

Fabbri's investment advice: ``Between now and early 1987, I'd be committing funds to utilities, telephones, insurance, banks, and profitable savings-and-loans. In the second and third quarter, start looking around for cyclical stocks.''

The latter part of 1987 could present some problems, he says. ``It would be very difficult for the stock market to keep advancing if interest rates start to rise sharply - even if profits are rising.''

While Fabbri's bear side doesn't emerge until mid-'87, William J. Gillard is already out of the cave. ``This is the time to remain wary,'' contends Mr. Gillard, director of investment policy at Kidder, Peabody & Co. ``The economy is very erratic. Fiscal policy management is, well, absent.''

Conventional wisdom dictates that about 60 percent of a balanced portfolio be invested in equities. Kidder, Peabody's model account stands at 45 percent. Gillard says Kidder upped the cash position in April and again in July. Twenty percent of the invested portfolio is in long bonds, 20 percent in Treasury notes, and 15 percent in T-bills.

``We want to be in a risk-averse posture,'' he says. ``Our bet is that you're better off in fixed income than in stocks - but it's not a heavy bet.''

In periods of uncertainty, money pros favor the safe dividends and steady earnings of the blue chips. Gillard is no exception.

``We're not fooling around with the small stuff. We're going with real American powers'' - specifically, companies with proprietary products, high barriers to entry, and ``service sectors rising to meet great needs.''

In practice, that puts pharmaceuticals on the top of the Kidder buy list. American drug companies (Pfizer, Bristol-Myers, Merck) are ``among the best in the world and valuations still look good,'' Gillard says. Financial data companies (Dun & Bradstreet, Reuters Holdings) take the second spot, followed by companies that mop up toxic waste (Waste Management).

But the pickings are slim. ``I don't think there are a great number of great buys now,'' Gillard says.

What would change his viewpoint? ``A price drop. And 100 points wouldn't do it.'' Barring that? ``A credible US fiscal policy.''

Meanwhile, the Dow tacks back and forth below the 2,000 mark. The index of 30 industrials closed at 1,924.78 on Friday, up 10.55 points for the week.