Excerpts from current market commentary by analysts...
Excerpts from current market commentary by analysts at major and regional brokerages, editors of investment newsletters and portfolio managers
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Michael Murphy, editor, California Technology Stock Letter, Half Moon Bay, Calif.
[The latest] sentiment numbers from Investors Intelligence [which tracks investment newsletter editors’ market predictions] were worrisome. When bears go under 30%, as they did the week of Jan. 20, the market often begins to labor. When the ratio of bulls to bears goes over 2 to 1, as it did the week of Jan. 27, the market often tops.
This is the highest level of optimism since March 1992, which was followed by six months of a flattish market. Other sentiment measures are at their highest levels since May 1989, when the last bear market began.
With the mutual fund cash-to-assets ratio plunging to 5.1%, the lowest level in 21 years ..., it’s clear that an awful lot of investors have joined the bullish camp.
Yet we know the economy is going through a wrenching, once-in-a-lifetime change to a technology base from a consumer, mass-production base. And we know the Third World is growing rapidly, with 2 billion people liberated from communism joining the labor force. They are fierce competition for our blue-collar workers and traditional assembly industries, but they are great consumers of our branded products and technology. We expect strong earnings growth in multinational consumer and technology companies for at least two years, regardless of how slow the U.S. economy gets. We remain fully invested.
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James Stack, editor, InvesTech Market Analyst, Whitefish, Mont.
Entering 1997, this market still has one overriding factor in its favor: the bubble psychology, or frenzied buying only in anticipation of higher prices. And it may continue until some event, Fed action or news item jolts investor faith. Nonetheless, there are a number of factors now building against the market, including:
* An aging [economic] recovery, where imbalances are causing inflation and recession flags to increase at the same time.
* The end of all of the following: the seasonal strength (from Dec. 1 to late January), the post-year-end Keogh/IRA contributions and the president’s reelection honeymoon.
* Post-election precedent. Of the 24 post-election years in this century, 20 have seen a 10% correction to that year’s or the next year’s low. Over half, or 14, have seen a -20% bear market. And almost a third, or seven, have experienced losses from -34% to -59%.
* Years ending in “7” are bearish. For whatever reason, four of nine such years in this century have experienced a major bear market, with losses eventually exceeding -35%.
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Alfred F. Kugel, senior investment strategist, SteinRoe & Farnham Inc., Chicago
Even though our best guess is that 1997 will be a fairly unexciting year for equity investors, we remain positive about the potential for further gains in coming years.
The United States is enjoying an unusually favorable macro environment--economically, politically and internationally--which provides an extraordinarily positive background for American companies and their stocks. Moreover, we see nothing on the horizon that might adversely affect these conditions.
Perhaps most importantly, the United States possesses favorable demographics. Roughly 30% of all the people in the country--consisting of 80 million baby boomers born in the 18-year period between 1946 and 1964--now are becoming serious investors. Over the past decades, this contingent was responsible for the school construction boom in the 1950s, the auto boom of the 1960s, the housing boom in the 1970s and the consumption boom of the 1980s. Why not an investment boom in the 1990s?
