'New Economy' bull hears growl of bear market

Wall Street's stealth bear market is becoming more visible.

The 30-second radio clips, the television spots, and the newspaper headlines have all highlighted the mostly ups of technology stocks.

"Nasdaq Hits New Peak," noted The Wall Street Journal last Thursday, referring to the technology-laden composite index of the over-the-counter market.

Last week's diving Dow Jones Industrial Average is changing the emphasis.

Behind what Wall Street observer Kathryn Welling calls the "mania" stocks, the price of most stocks has fallen.

"If you are invested in the 'Old Economy,' it is a brutal bear market," says Ms. Welling, writer of a stock report for Weeden & Co., a Greenwich, Conn., brokerage. "If you're in the Nasdaq 100 [tech stocks], you are on top of the world."

Possibly, the portfolios of most investors are down in value. But Wall Street experts have no statistics to make such a statement with certainty.

"The people being hit are the traditional buy-and-hold investors," says David Blitzer, chief economist for Standard & Poor's Corp., New York. "Active traders, playing high-tech stocks, are probably doing okay."

The numbers are startling.

*The Dow Jones Industrial Average of 30 Blue Chip stocks has slumped almost 16 percent from its all-time high in mid-January, even though it includes some important technology stocks.

This reflects a sell-off of the stocks of huge companies, stocks much in favor for the past few years.

*The Value Line index, which covers 1,650 stocks, is down about 8.5 percent this year; the even broader Wilshire 5000 index, has fallen about 5 percent.

The majority of stocks, those not in the limelight, have been "acting poorly" for a year or two, says Samuel Eisenstadt, Value Line's research chairman.

*On the New York Stock Exchange, about 75 percent of common stocks have dropped 20 percent or more from their 1998-99 highs, calculates Merrill Lynch analyst Richard McCabe. Some 43 percent were down 40 percent or more.

On the Nasdaq market, despite its high-tech element, the comparable figures are down 67 percent and 46 percent.

*Lifted by high-tech stocks, the Nasdaq Composite Index was up about 13 percent for the year, but down Friday.

Speaking boldly for an analyst at a major brokerage house, Mr. McCabe sees the possibility of the drop in the major stock indexes reaching 20 percent by mid-year. One such index, the Standard & Poor's 500, was down about 8 percent for the year last Friday.

When the Dow Jones average closes below 10,000 - as it did Friday, it might "tend to shake out at least some of the unhealthy overenthusiasm or complacency about risk which has become so deeply ingrained in the market recently," figures McCabe.

Many tech stocks have been raised sky high by speculation and could tumble harder, says McCabe. "It is getting so much overdone, I don't think it is going to last much longer."

After such a market "correction," investors could switch money into "value stocks" and other more conservative investments, speculates McCabe. Tech stocks would be left in the doldrums.

Arnold Moskowitz, a veteran Wall Street economist, is hesitant to forecast the fate of the overall market this year. "A little bit early," he says. But he does see more "ups and downs" for stock prices than most bullish investors anticipate.

One big fear of investors is that the Federal Reserve wants to dampen stock prices just as it wants to slow economic growth.

In this regard, Fed chairman Alan Greenspan reassured Congress last Wednesday that the Fed's tighter monetary policy was not aimed specifically at stock prices. But he was concerned that the extra paper or real wealth from the stock market was contributing to a too-strong economy. Asset values, such as stocks, should "increase no faster than household income."

Investors were pleased that he wasn't targeting stocks directly. They pushed the Nasdaq index to a new high that day.

But some analysts find worrisome the tech stock "bubble." And few economists doubt that the Fed can slow the economy - and in the process hit stocks - if it is persistent. Wall Street expects two or more interest-rate hikes in the next few months.

"It is now widely perceived that the major risk looming over the world economy in the year 2000 is the possibility of a large stock-market correction in the United States," notes David Hale, an economist with Zurich Financial Services in Chicago.

The value of all US stocks has risen to 150 percent of the value of the nation's annual output of goods and services This compares with a 60-year average of 49 percent, Mr. Hale calculates.

With the tech-market boom, small companies in high-tech have been able to raise money for growth. Last year, initial public offerings of stock raised $69.2 billion, up from a previous peak of $50 billion in l996.

Foreigners helped. They have put $1.5 trillion in US stocks since 1994. If they change their mind, it will not help prices.

(c) Copyright 2000. The Christian Science Publishing Society