No-Fear Market Sees Worries but Refuses to Blink
Irvine-based surf wear maker Mossimo Inc. goes public today, and you can expect its stock to soar on the New York Stock Exchange from the initial price of $18 a share. But on the floor of the NYSE, a more appropriate choice of apparel than Mossimo T-shirts would be something from the firm’s smaller, down-coast rival, No Fear.
Because if this isn’t a No Fear market, there never was one. With Thursday’s 92.49-point gain in the Dow Jones industrial average, to yet another record high, the stock market is demonstrating that it has no fear of . . . nuthin’.
No fear of higher bond yields, which have leaped this week on suspicions about faster economic growth ahead. No fear of short-sellers, who have been trying to punch this market down in recent weeks only to be KO’d themselves on Thursday. No fear of computerized “program” traders, whose rapid-fire trades last week accounted for the biggest share of NYSE volume since May 1992, and whose resurgence may be a sign of much greater speculation in stocks.
And evidently, no fear of politics. In theory, Wall Street has every reason to be frightened of Populist Republican presidential candidate Patrick J. Buchanan, whose anti-free-trade, anti-corporate rhetoric seems to be striking a chord with millions of Americans. But Buchanan so far is largely regarded by most market pros as a mere flash in the pan. “I’m not worried about him,” says a confident Stanley Nabi, vice chairman of investment firm Wood Struthers & Winthrop in New York. “I think he’s peaking early.”
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Leon Brand, strategist at NatWest Securities in New York, is inclined to view Buchanan’s ascendance as a potential positive for Wall Street. As Brand figures it, the majority of Republicans in Congress may decide that the only way to stop Buchanan--and aid Sen. Bob Dole’s flagging campaign--is to get serious again about balanced-budget talks with President Clinton.
If a budget deal can be worked out, with Dole automatically given much of the credit as the party leader, Brand thinks it would bolster Dole and give markets something more to cheer about.
But do markets--should markets--care much about politics, anyway?
Some money managers say it isn’t worth the time or energy gauging political shifts. “We frankly don’t think it’s anything we can assess,” says Jim Walline, a fund manager at the Lutheran Brotherhood investment firm in Minneapolis. And in any case, he notes, the stock market hasn’t acted all that differently under either Republican or Democratic administrations.
Indeed, a Standard & Poor’s Corp. study found that between 1889 and 1992, the average annual gain in the S&P; 500 stock index was 7.8% when a Democrat occupied the White House, and 7.6% when a Republican was the tenant.
Still, there is no denying that political change can force economic change, ultimately affecting the fundamentals for stocks and bonds. President Lyndon Johnson told America it could have guns and butter, and arguably lit the fuse of the 1970s inflation bomb. It can also be argued that Ronald Reagan, in firing striking air traffic controllers in the early 1980s, set the tone for how business would deal with labor from then on--forcing wage gains down and persistently weakening unions, to obvious corporate (and stock price) advantage.
Even if Patrick Buchanan can’t make it to the White House, there’s the question of what his message means: Could corporate profits be peaking, after their long and spectacular climb since 1990? Could anti-free-trade sentiment be taking root, not just here but in Europe and elsewhere? Could Populist demands for a faster-growing U.S. economy--the Fed be damned--sow the seeds of higher inflation?
Any of the above could be the bull-market killer. For now, however, the No Fear stock market obviously isn’t worried. Money continues to flow in, prices continue to go up, and most stock pros say we can keep climbing--even though, the higher we go, everyone knows that the risk of an eventual disaster also grows.
But “eventually” could still be a long way off. “Yes, this market looks like it has entered a mania,” says veteran analyst Hugh Johnson at First Albany Corp. “But I would argue that we’re in the early stages of a mania, not the later stages.”
No Fear, baby.
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Programs’ Return?
Computerized program trading on the New York Stock Exchange amounted to 20.1% of all trading last week, the highest since May, 1992, and perhaps a sign of rising speculation in the market. Weekly program percentages as a percentage of total volume:
February: 20.1%
Source: New York Stock Exchange
