1994 May Shape Up As a Turbulent Year On Wall Street

STOCK MARKET OUTLOOK

THE slow and steady pace of the stock market in recent months just may be the ``calm before the storm,'' some financial experts say.

``Everything is just pretty slow right now,'' says Hildegard Zagorski, a market analyst with Prudential Securities Inc. ``The market has had the [Martin Luther King Jr.] holiday [and] then it became diverted with the terrible earthquake out in California. So stocks have sort of been on hold for awhile.'' But the steadiness and calm will probably not be the norm in the weeks and months ahead, she adds.

With the exception of the gold market, 1993 was characterized by relatively steady financial markets in the United States. The strong worldwide demand for gold - particularly in Asia, where inflationary fears have prompted investors to channel cash assets into gold - has sent the price up and down throughout the year.

The stock market, meanwhile, continued to gain throughout 1993. With some exceptions when the market (or individual stocks) shot up or down in turbulent trading, the overall pattern was ``not at all like the `bad old days' of program trading,'' Ms. Zagorski says. With program trading, large institutional investors could send major market indexes plummeting with computerized sell orders. Now, the New York State Exchange has put a ``collar'' on program trading, momentarily halting computerized trading if the market falls 50 points.

But experts say there may be more volatility in the stock market in 1994. It will be very hard for the market to duplicate the steady pace of 1993, according to Dennis Jarrett, chief market analyst for Kidder, Peabody and Company, an investment house. The market will have a good correction this year - possibly 10 percent or more, he says. But the correction may not be as mild as most analysts anticipate, Mr. Jarrett says. Although many pundits say a correction will occur during this first quarter, Jarrett says no one can assume when it might happen.

Last year broke new records for low stock market volatility, says David Shulman, chief investment strategist for Salomon Brothers Inc., a financial house. There was a 9.8 percent difference between the high and low on Standard & Poor's 500, Mr. Shulman says. The prior record for stability, set in 1992, was 11.8 percent. Since 1934, the average has been around 28 percent.

Salomon Brothers is concerned about a recurrence of market volatility in 1994, Shulman says. The investment house maintains a cautious stance toward asset allocation, he says, favoring an allocation of 45 percent in stocks, 30 percent in bonds, and 25 percent in cash. A likely rise in short-term interest rates could create even more volatility, Salomon Brothers concludes. The company also says ``an unsettled international environment'' could increase market volatility.

Several global events could rock the stock market, including a possible ``financial meltdown'' in Japan and political turbulence in Russia, says Eric Miller, chief investment officer of Donaldson, Lufkin & Jenrett Inc. But these events are not highly likely, Mr. Miller points out in a recent study.

What is more likely, market strategists say, is volatility between stock sectors. But that internal shift of assets, where investors shift monies between different types of stocks, especially among mutual funds, would not necessarily be reflected in wide swings on the blue chip market, as measured by the Dow Jones industrial average.