WALL STREET ANALYSIS : Stock Rebound Was an ‘After You’ Event

If the stock market is a perpetual poker game between fear and greed, fear folded on Monday--at least, for this hand.

But the Dow Jones industrials’ 29.52-point rebound from Friday’s 120.31-point plunge had an unmistakable tone: It was a “you first” rally, in which most investors were willing to buy only after they saw others go before them.

Boston-based Fidelity Investments, the nation’s largest mutual fund company, illustrates the point. The company ended the day with a net inflow of nearly $100 million, most of that into stock funds, spokeswoman Pat Harden said.

“It was an exceptionally strong day,” she said, as many small investors shook off Friday’s plunge and decided that stocks were bargains.

Still, the buying didn’t begin in earnest until around noon EST, Harden said--after investors had watched the market edge higher in confused morning trading.

In other words, stocks had to look OK before individual investors decided to vote with their cash.

Is that apparent lack of investor conviction a sign of a dying bull market? A lot of bearish analysts will say so. But then, the bears’ arguments have been wrong all year, as the stock market has taken repeated hits only to go on to new highs.

The bears believe that greed (i.e., stocks’ rise this year) must eventually give way to an extended bout of fear--meaning a wave of selling to try to lock in the paper profits investors have accumulated.

Wall Street certainly saw some semblance of fear in Friday’s surprise market plunge. But after gathering their thoughts over the weekend, many would-be sellers changed their minds.

Maybe they couldn’t figure out what else to do with their money. Maybe they blamed Friday on those damned computerized program traders or on the overheated biotech-stock sector.

Or maybe most investors simply haven’t thought of themselves as particularly greedy this year--and therefore, they don’t understand what it is that they have to fear.

Far from a roaring bull market, the Dow index has churned in a narrow range for most of this year, working itself higher at a tortoise’s pace. If investors have been greedy, it’s been a very cautious kind of greed, except for a few notable market segments such as biotech.

Investors have repeatedly bought stocks this year for a few solid reasons: They believe that the economy will recover next year; interest rates have plunged, boosting the value of equity investments, and other investment alternatives, such as real estate, look far less appealing.

In recent weeks, of course, confusion about the economy’s recovery has risen sharply. Worries about another slide into recession were a major factor in Friday’s market drubbing.

But Monday’s buying was a sign that many investors still can’t part with the idea that there will be some kind of recovery next year, with a bounce in corporate profits, and without a meaningful rise in interest rates.

“The two things that make stocks tick are interest rates and earnings, and both of those things are OK,” argued longtime bull Roger Engemann of Pasadena-based money management firm Engemann & Associates. “I think last Friday was just a pure fluke.”

A lot of investors evidently took that same view Monday. But the “you first” quality of the rally also exposed the underlying caution that has gone hand-in-hand with greed this year.

Indeed, it wasn’t a powerful rally Monday. Falling stocks narrowly outnumbered winners on both the New York Stock Exchange and the NASDAQ small-stock market. But by the close, enough money came back into the market to lift almost all of the key indexes for the day.

If history is a guide, cautious and confused markets generally aren’t the types that suddenly crumble. As long as investors can hold out hope for a better economy in 1992, stocks aren’t likely to fall to pieces soon, many experts say.

“I don’t think that the kind of momentum we’ve had--underpinned by declining interest rates--turns negative on a dime,” said William Paternotte, research chief at brokerage Alex. Brown & Sons Inc. in Baltimore.

Even professional investors who are wishing for a steep market slide--so that they can buy stocks cheap--admit that they may be frustrated for a long time.

“I was hoping this thing would go down again” Monday, said Robert Bacarella, money manager at Monetta Financial Services in Wheaton, Ill. “But there’s just a lot of money waiting on the sidelines to come in.”

A Year of Hope-and Now Confusion Since the day the Gulf War began in mid-January, the stock market has forged ahead and rarely looked back. Investors have continually pinned their hopes on an economic recovery. Even now, as the economy’s outlook appears increasingly confused, investors seem reluctant to leave stocks for very long. Friday closes for the Dow Jones industrial average (except for latest) Monday close: 2,972.72, up 29.52 Monday Ends With a Rally The Dow index avoided a “Meltdown Monday” after Friday’s 120.31-point plunge; by the close Monday the Dow had recouped 29.52 points. Highlights: * While most key stock indexes rebounded, falling stocks still outnumbered winners 950 to 726 on the New York Stock Exchange.

* Trading volume of 242 million shares on the NYSE was heavy but barely above Friday’s level of 239 million.

* Most investors showed little reaction to Friday’s Dow plunge, apparently believing it doesn’t signal a major market shift.