As Year Winds Down, Analysts See Stocks Moving Up

THE stock market is now entering one of its more important phases: the post-holiday period of early September.Of course, underlying economic conditions, rather than the calendar, eventually dictate market performance. Still, the Labor Day weekend is a dividing point, says Larry Wachtel, a vice president with Prudential Securities in New York. The weekend separates the summer holiday season from the more serious days of late summer and early fall. In September, says Mr. Wachtel, companies and financial houses throughout the United States will be holding meetings to prepare new corporate and investment strategies. Plans will be initiated. "That's one of the reasons why October is always so volatile" in terms of market activity, he says. The summer of 1991 was marked by overall market sluggishness - until the week or so immediately after the failed Soviet coup, when investors poured new money into equities. Wachtel believes the failed coup was important in the sense that one of the worst-case scenarios - the overthrow of President Mikhail Gorbachev - didn't last. Despite everything that's occurred in the Soviet Union, says Wachtel, the underlying challenges for the US and global economies have not altered much. "You've still got the equi librium between high valuation levels [for equities] and low institutional cash positions, versus huge amounts of private cash sitting in certificates of deposit." "We've had six months of market consolidation and a narrow stock trading range," says Gene Jay Seagle, an analyst for Gruntal & Co. in New York. Then, the Soviet coup momentarily interrupted the sluggishness. Mr. Seagle says the improved breadth of the market - with more issues posting gains than showing declines - suggests that a rebound is under way. He says the market is forecasting a better economy. Seagle concedes that he worries about the "slowness" of the Federal Reserve Board to expand the money supply. Seagle would like to see the Fed lower interest rates even more. Such action, he says, would increase borrowing, which would rev up the economy. Still, he says the Dow Jones industrial average will probably climb to the 3,l50 to 3,200 range during the weeks ahead, well ahead of last week's trading range of 3,000 to 3,050. Sectors likely to post gains, Seagle says, include health care, retailers, public utilities, and international stocks - particularly blue-chip stocks with global links. Seagle predicts that money now in CDs - up to $500 billion in the US - will soon return to equities, given "the lousy rates of return" on interest-earning investments. "If we're going to see a breakout [in the market], it will come in the next four to six weeks," says James Stack, publisher of InvesTech, a market newsletter published here in the Western US, in Whitefish, Mont. Mr. Stack expects the Fed will lower interest rates, in part because of political considerations. The Fed, he says, is carefully calibrating the recovery; were it to pump up the economy too much, there is the danger of a higher inflation and another recession sometime in 1992 - an election year. So the Fed is slowly lowering rates, and ensuring a gradual recovery, he says, to keep the economy on a steady course. There are still signs of weakness in the economy, such as last week's downward revision of the gross national product for the second quarter; however, Stack does not see any real danger of the economy slipping back into recession right now. "At the worst," he says, "the rebound has leveled off." Stack says technical data suggest that stocks could enter a "bull market." Trading volume, he notes, has been good. Also, there is breadth across different markets, with the NASDAQ index, for example, setting new highs lately. Stack believes that if the Dow remains near 3,050 for now, it could rally into the 3,150 to 3,200 range later this year. That is what Seagle also argues. Time will tell if they are right.