Looking Ahead With a Bull and a Bear

'Normal mini-correction,' says John Ryding

Still bullish? "Absolutely," says John Ryding, senior economist at Bear Stearns & Co.

"There is just no reason" to be a long-term pessimist about either the United States economy or the US stock market, he says. "Bull markets come to an end when a significant policy error is made."

The most basic error that could occur, Mr. Ryding says, would be for policymakers to allow inflation to get out of hand, given strong growth in the economy. That economic muscle was underscored by last Friday's government report showing the US jobless rate falling to 5.2 percent in March, its lowest level in five months.

"The economy is in fantastic shape," Ryding says. The Federal Reserve, which boosted short-term interest rates last month, "is making a small policy adjustment," seeking to break overly expansive growth and thus head off long-term inflationary pressures.

Ryding expects at least one more rate hike, probably in June or July.

The current selling in the market, says Ryding, represents a normal mini-correction. It is similar to a modest downturn in the summer of 1996. But that dip, he notes, did not arrest the larger momentum of the bull market, which has touched above 7000 this year.

"I fully expect [the Dow Jones industrial average] to be above 7000 by the end of the year," he says.

Of course, it may take a few bumps on the stock market roller coaster to get us there, he adds.

Sectors Ryding likes include selected technology firms, and - looking down the road a bit - financial firms. The financial companies, he says, first need to hurdle the potential negative impact of the Fed's rate hikes.

Dow May Drop to 6000, says Marshall Acuff

Marshall Acuff says he not growling, but he's close to it: Call him a "muted bear."

"The long-term bull market that has been under way since 1982 is now in a broader corrective phase than anything we've seen since the early 1990s," says the market strategist at Smith Barney.

The market's momentum, he believes, has been broken.

That's not happy news if you've got money in the market. The Dow Jones industrial average may sink as low as 6000 points before the slide is arrested, he predicts.

Mr. Acuff's view is a middle one among bears. Some worry the market could shed 20 percent of its value, and drop to about 5600.

"For the market to do better, there's got to be a broader sense that economic growth is slowing," Acuff says. Without that slowing, the Federal Reserve may keep raising interest rates to hold the lid on inflation). High interest rates hurt stocks by cutting corporate profits and by making bonds look relatively better to investors.

Already, Acuff says, corporate profits are set to slow in the months ahead.

The number of companies saying first-quarter earnings will disappoint analysts expectations is up 23 percent this year compared with last year.

The upshot of all this: lower gains on stocks.

Forget the 10 percent or better annual returns investors have come to expect. Acuff sees gains of 6 to 7 percent for the next few years.

Still, some sectors continue to be inviting. They include oil-service and drilling companies, Baby Bell telecommunication companies, and some high-tech firms.

Acuff also likes large-company, high quality firms. And he says small investors will probably hang onto their equity funds, he says. That's a plus for the market.