The Case For, and Against, Stocks

Do global stock markets have more going for them or against them as investors look to the year 2000? Here’s a rundown of the pros and cons of investing in equities today:

PRO

* The Federal Reserve is “neutral” with regard to further interest rate increases and seems willing to allow the U.S. economy to continue to expand at a healthy pace.

* Interest rates in Europe are at generational lows.

* Japan may finally be emerging from a nine-year economic funk; Japanese banks are beginning to lend again, at least to major firms.

* Asia in general is recovering from its two-year economic crisis. Industrial production in South Korea is rocketing.

* Russia’s economy may at least have stabilized.

* Brazil has weathered its January currency devaluation far better than expected. Interest rates have come down sharply.

* U.S. corporate earnings are accelerating after 1998 slowdown.

* U.S. stock market breadth is expanding, reflected in rising smaller stocks.

* Fears of global deflation have abated.

* Takeover mania shows few signs of slowing, as companies worldwide continue to stress efficiencies of scale.

* U.S. investors’ appetite for new stock offerings is robust, reflecting a general willingness to take on higher risk in search of higher returns.

* The U.S. government expects a $1-trillion budget surplus over the next 15 years.

* The U.S. political situation has stabilized after the failed attempt to impeach President Clinton.

* The NATO victory in Kosovo was a victory for democracy and global cooperation.

CON

* Stock valuations remain historically high worldwide and particularly in the United States. By some measures, U.S. blue-chip stocks are 40% overvalued.

* The Internet stock bubble in the U.S. market, although somewhat deflated, reflects a mania that is typical of markets as they near their peaks.

* The global economic situation remains tenuous, with much of Europe bordering on recession and Japan’s economy still very weak.

* China’s economy has slowed markedly, increasing the risk that China might devalue its currency to push its exports--a move that could trigger another devaluation wave worldwide.

* No one knows the extent of year 2000 computer bug problems. Jitters over Y2K could trigger panic selling in markets as 2000 approaches.

* Russia is politically unstable; no one knows who will succeed ailing President Boris Yeltsin.

* There remains an oversupply of industrial capacity worldwide, which could eventually unleash more deflationary pressures, threatening corporate earnings.

* Junk bond defaults are rising in the U.S. high-yield bond market, suggesting that corporate credit quality is beginning to deteriorate.

* The unprecedented level of corporate mergers worldwide is a sign of executives’ overconfidence in their abilities to manage ever-larger entities--reminiscent of the leveraged-buyout craze of the late 1980s, which ended in disaster.