What the Stats Say and What They Could Mean

Why worry that U.S. stocks might be poised for a significant pullback soon? The strong possibility of an interest rate boost by the Federal Reserve Board is one big reason. But some Wall Street analysts say the market has been generating other signals that suggest its next major move is more likely to be down than up. For example:

* The blue-chip Dow Jones industrials have held up well in recent weeks, closing Friday with a gain of 56.19 points at 7,000.89--just shy of the record high of 7,067.46 set Feb. 18.

But smaller stocks--which make up the bulk of the market--have badly lagged blue chips this year. The Russell 2,000 index of small stocks is up just 0.8% this year, versus the Dow’s 8.6% rise.

It isn’t always ominous when the broad market lags big-name stocks. But often enough, “it’s a sign of an aging, tiring bull market,” said Richard McCabe, veteran technical analyst at Merrill Lynch & Co.

* Many technology issues that had been regarded as stellar growth stocks last year have been smashed in recent weeks, including many computer networkers (3Com, Ascend Communications, Xylan). “There’s a minefield developing in the Nasdaq market,” where most tech issues reside, warned Richard Eakle, analyst at Eakle Associates in Fair Haven, N.J.

The tech stocks’ troubles stem largely from expectations of slowing earnings growth. Investors expected weaker earnings from many companies this year, but not in the tech sector. If the networkers’ problems signal widespread earnings problems, that will remove another important leg of support from the market.

* Utility stocks, which have historically been harbingers of interest rate trends, are signaling the likelihood of higher rates ahead. The Dow utility stock index last week fell to its lowest level since October, even as the Dow industrials hover near their highs.

None of these trends necessarily foretell a bear market, but they do boost the market’s vulnerability to any unpleasant shocks ahead.