Hare today ... where tomorrow?

Mutual funds finished 1998 with breathtaking results. But expected market volatility leaves little consensus on the pace for1999.

A last-minute cavalry rescue ride ... a nick-of-time parachute opening ... a last-second, diving end-zone catch clinches a come-from-behind win.

Go ahead, choose the juiciest comeback clich. None can express the jaw-dropping audacity of last quarter's rebound in US stock mutual funds.

They sprang, in early October, from out of the summer's tiger trap of losses. The market in the fourth quarter soared far away from fears of a liquidity crunch and global market chaos. It even shrugged off air attacks against Iraq and the first impeachment of a twice-elected United States president.

"In a matter of weeks we went from complete, utter despair to complete jubilation," says Bill Meehan, chief market analyst at Cantor Fitzgerald in Stamford, Conn. "I don't know anyone, no matter how bullish, who thought we could regain in eight weeks all that we had lost," says Anthony O'Bryan, market analyst for A.G. Edwards in St. Louis.

The Standard & Poor's 500 stock index logged a record fourth straight annual gain above 20 percent.

So once again, autopilot investing paid off big: Mutual funds indexed to the S&P 500 beat more than 90 percent of funds that are actively managed. The typical fund manager yielded a pathetic average gain in 1998 of about 7 percent.

Entering the millennium's final years, technology and especially Internet-related companies, seemed to be climbing the ether.

Big, highly valued favorites, like Intel, recovered from a lousy 1997 and a headlong stumble in early 1998 to put high-tech in the lead among industry groups for the year.

Another glitzy sector, entertainment, shared the winner's spotlight. Steadier, less glamorous sectors like clothing retailers and drug stores also shined.

Among the impressive winners, there were many losers. Disinflation battered hard-asset sectors - real estate, energy, and basic materials. Financial stocks, Wall Street darlings in previous years, plunged during the market tumult that began in Russia last August. They never fully recovered.

More important, the bounce back of the Dow Jones Industrial Average and S&P 500 lack "breadth," according to market lingo. A few hot stocks power the indexes, while others remain tepid at best, market analysts say.

"The rebound started with a big base but then narrowed," says Mr. Meehan. "I would have thought investors would have learned the lessons from earlier in the year," when a small portion of stocks drove the precarious rise of many indexes, he says.

The narrow base, high volatility, and Cecil B. De Mille comeback of the 1998 market affirms timeworn investment lessons for the new year: diversify and hold for the long term.

The investors who suffered last year were those who focused on a sour sector or who hurled themselves into the tsunamis of selling from August to early October, analysts say.

Severe market volatility in the new year will probably again spur many investors to cut and run. Wall Street feels a whipsaw because conflicting forces for optimism and pessimism are the sharpest in decades.

The market's strongest ally has been Federal Reserve Chairman Alan Greenspan. The Fed's three, quarter-point cuts in the federal-funds rate from late September to mid-November erased fears of a liquidity shortage. More than 30 other central banks followed Mr. Greenspan's lead.

Investors who fled the market and failed to heed the saw, "Don't fight the Fed," lost badly.

Moreover, the underlying economy is a dream: a balanced federal budget, strong productivity and employment, low inflation and interest rates, and growth that is easing but less than expected.

The glowing fundamentals prompt some leading analysts to predict the market will continue to glide heavenward. Abby Joseph Cohen at Goldman Sachs & Co., one the bull market's most revered prognosticators, expects the Dow to end the year at 9,850, or 7.3 percent higher.

"We'll have a pretty good year in 1999," says Mr. O'Bryan. "The market has a good underpinning," he adds, estimating that corporate profits will gain about 7 percent.

Still, some analysts predict a tumble. "I expect something will prick the bubble," says Meehan: "this market is a very high risk, there seems to be almost a complete absence of fear and it's looking more like a casino every day." He and other analysts see several danger signs:

Consumers flushed with paper equity profits recently logged a negative savings rate for the first time since the Depression.

Stocks are more expensive than ever, with equities in the S&P 500 selling for more than 30 times last year's earnings.

Profits are shrinking because labor costs are high, the world economy is slow, and desperate companies in East Asia and Latin America will continue slashing prices. "Corporate earnings," says Merrill Lynch chief economist Bruce Steinberg, "are likely to be disappointing."

Investors will likely become increasingly anxious that computers worldwide will crash on Jan. 1 of next year because they are not programmed to properly read the date 2000.

The euro, the common currency launched last Monday by 11 European countries, could backfire and stir up markets.

Severe financial problems in Russia, Japan, Southeast Asia, and Brazil threaten to trigger more turmoil in global currency and securities markets.

"The truth is that the world economy poses more dangers than we had imagined," writes Paul Krugman, an economics professor at the Massachusetts Institute of Technology in Cambridge. in the latest issue of Foreign Affairs.

It would "be foolish," writes Mr. Krugman, "to imagine that there will be no more financial-market scares in the United States or Europe."