Is Wall St.’s Bull Run Over?
Today is the 10-year anniversary of stocks’ bull market. If that’s what we still can call it.
The surge in share prices since Oct. 11, 1990, the market’s bottom after the plunge that followed Iraq’s invasion of Kuwait, ushered in a period of breathtaking gains that have lifted major stock indexes at least 300%--and the Nasdaq composite index more than 800%.
Share ownership became a routine part of life for millions of Americans over the last decade, as their savings helped fuel the market’s advance, lifting the total value of U.S. stocks from $3 trillion in 1990 to $13 trillion now. The profits generated by stocks’ gains, in turn, helped drive the U.S. economy’s growth.
But today’s market is a fractured bull, at best. Indeed, with the tech-dominated Nasdaq down 36% from its March peak--including Tuesday’s slide of 115.02 points, or 3.4%, to 3,240.54--some investors understandably question how anyone still can call this a bull market.
The classic definition of a bear market, after all, is a 20% or greater decline in major indexes.
“If this is a ‘correction’ in a bull market, I’d hate to see a bear market,” said Stan Weinstein, an institutional newsletter writer.
But many Wall Street pros say Nasdaq’s woes are simply a reflection of how overvalued some tech shares became early this year. They point to the sharp gains in many other stock sectors this year as proof that the bull market is still intact.
“Many people would say we’re in a bear market because the market’s down this year and technology is not working,” said Brian Belski, strategist at U.S. Bancorp Piper Jaffray. “But we’re not in a bear market because of the emergence of new [market] leadership and strong outperformance of small- and mid-cap stocks.”
While tech shares have slumped, the Dow Jones utility index has jumped 37% this year, the Standard & Poor’s financials index has risen 13% and the S&P; mid-cap stock index is up 13%.
Oil, drug and other less glamorous sectors also are rising up to fill some of the void created by tech, analysts note. All in all, the New York Stock Exchange composite index of all Big Board shares is up slightly this year.
What’s more, some analysts say tech and other beaten-down sectors are nearing the end of their declines. “We’re going to look back at this month for individual stocks and will identify some of the great buying opportunities of our time,” said well-known market analyst John Bollinger.
But if the bull market rolls on, even optimists say it’ll look a lot different than the one that roared through the 1990s, driven by soaring corporate profits, falling interest rates and capitalism’s spread.
Select tech stocks will perform strongly, many pros say, but the heady gains of the 1990s won’t be repeated any time soon. Instead, expect more tepid gains from a cross-section of industries.
In fact, some analysts question whether the terms “bull” and “bear” markets are appropriate for what Wall Street has experienced over the last two years, and is likely to experience in the years ahead.
“This market, more than any market I’ve ever looked at, has been able to take the prior leadership out behind the shack and have new leadership” take its place, Bollinger said.
Many stocks fell into decline starting in the spring of 1998, and only began to rebound this year. Tech, by contrast, had advanced so sharply in 1999 and early 2000 that old bull-market parameters were swept away.
Yet some pros say there’s no reason to believe that the general appeal of stocks has lessened.
“There will be breathing spaces,” said Alan Hoffman, senior portfolio manager at Value Line Asset Management. “We saw it with the Asian crisis, with the fall of Long Term Capital Management [in 1998], etc. Now people are wringing their hands over the surprisingly close presidential election, the weak euro, slower corporate earnings.” But these worries, too, are just creating opportunities for long-term investors, he said.
Erik P. Gustafson, manager of the Stein Roe Young Investor and Stein Roe Growth Stock funds, said stocks will continue their general trend higher as long as “the pillars of the great bull market” are standing: “the Greenspan nirvana economy; 80 million baby boomers putting money into equities; the transformation of the U.S. from an industrial to an information-based economy, driven by technology; and the freedom dividend, or 4 billion people living under free market conditions today versus 1 billion 20 years ago.”
Sector rotation is unavoidable and indeed healthy, managers said.
As Nick Calamos, fund manager at Calamos Asset Management, put it, “We’ve had a lot of rolling recessions [in stocks], with basically every sector getting hit. In the early ‘90s it was banks, airlines and REITS [real estate investment trusts]. Then it was drugs in ‘92, tech in ’95 and ‘98, and last year, utilities. Now the semis and chip-equipment makers are weak again, along with other groups.
“But,” he said, “what really kills a bull market is bad monetary policy, and we still have free trade, low taxation, low regulation and a stable currency in place.”
Many managers still like the tech sector.
Said Larry Puglia, manager of T. Rowe Price Blue Chip Growth: “Everybody assumes the market is rotating and tech will do poorly now. Well, it may not. Stocks like Cisco Systems and Microsoft might represent some of the best opportunities over the next 18 to 24 months. People forget that nobody wanted ‘old economy’ names like Safeway and State Street last year.” This year those stocks are up 38% and 63%, respectively.
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The Tech Decade
The five top-performing stock industry groups within the blue-chip Standard & Poor’s 500 index since 1990 have been technology groups. Here are the 10 best performers, measured from October 11, 1990, through Tuesday:
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Sector Average stock gain Defense electronics 2,055% Semiconductors 1,1915 Communications equip. 18,31 Computer software 1,714 Electronic instruments 1,320 Personal loans 1,205 Misc. financial 1,083 Multi-line insurance 847 Electric equipment 818 Drugstore chains 637 S&P; 500 index 369
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Source: Bloomberg News
