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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David Shulman, chief equity strategist, Salomon Bros., New York

With the stock market already under pressure from the Federal Reserve Board’s tightening [of credit] and a deteriorating bond market, portfolio managers will soon be staring down the possibility of a “trade shock.” Simply put, the annual renewal of most-favored nation trade treatment for China is in real trouble on Capitol Hill.

Because China symbolizes the idea of the global economy, the threat of a U.S.-China trade spat undermines one of the principal underlying theses of the bull market: a high-growth world with surplus labor. We continue to believe that rising interest rates alone will take the broad market averages down to around 740 on the Standard & Poor’s 500 index [from 762 currently]. Should fears of a trade shock become widespread, the S&P; could soon find itself testing the 700 level as two [benign interest rates and free trade] of the three props underneath the 1995-97 bull market give way.

For the first time in a long while, we recommend domestic companies over international ones in the near term, with international energy companies being the exception.

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Bruce Steinberg, economist, Merrill Lynch & Co., New York

U.S. payroll employment rose by 175,000 for March, considerably below the revised 261,000 average of the prior three months. But continued job growth at the first-quarter average pace of 242,000 per month would tighten labor markets further. We don’t believe the Fed is willing to take the risk.

So we are throwing in the towel and now assume the Fed will probably tighten twice more ... [first] probably at the May 20 meeting and probably again after that. As a result we also believe that the economy will end up slowing sharply by late 1997.... If so, corporate earnings will presumably suffer, but bonds should do well.

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Gary Schlossberg, economist, Wells Capital Management, San Francisco

Intermediate-term [bond] rates still are at levels consistent with the current 5.5% federal funds target. That leaves room for an additional quarter-percentage-point increase in two-year Treasury yields [from 6.4% currently], if expectations of another rate hike by the Fed continue to build.

Elsewhere, “yield-advantaged” mortgage-backed and corporate bonds outperformed Treasury issues during much of last week. Muni bonds lagged after their relatively good showing last month, but the weakness may be temporary: Tax-exempt munis are well-positioned to benefit in coming weeks from more attractive yields and any further exodus from the stock market.

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Charles B. Carlson, editor, Dow Theory Forecasts newsletter, Hammond, Ind.

One characteristic of a secondary correction within a bull market is that the selling activity is usually much more sharp and violent than the trading activity during the preceding upward trend. Such has been the case over the last few weeks.

In general, secondary corrections usually last three weeks to three months and retrace one-third to two-thirds of the market’s advance since the last significant pullback. Based on these parameters, this correction could last up to another two months or so and pull the Dow industrials below 6,000 before it is finished.

Admittedly, it is not easy to maintain a positive stance toward stocks during such volatile periods. However, investors who focus on the primary trend and avoid trying to time secondary corrections usually are rewarded over time.

--Compiled by Times staff writer Tom Petruno