But don’t lease that stretch limo just yet. Last week’s baby bull market notwithstanding, the days when movie stars and short sellers partied till dawn on the late publisher Malcolm Forbes’s yacht won’t have another run. Whatever awaits, it’s unlikely to be easy returns. Here are five reasons why:
There was much less to last week’s boomlet than met the eye. While the Dow industrials set a new record, the rest of the market ran for cover. By the end of the week losers were outnumbering gainers and technology stocks were taking a real beating. The pundits say baby boomers anxious about retirement are flooding the stock market with enough money to keep things boiling; the Investment Company Institute reports that investors put $18.2 billion into stock mutual funds in December. But that inflow might not be enough to keep prices rising across the board.
Last week all the arrows were positive: unemployment fell in January, productivity is soaring, retail sales are strong and, at long last, interest rates in Europe are beginning to drop. All those reports are bullish for stocks. But they also make a tough act to follow. With stock prices already reflecting great expectations for months to come and with U.S. interest rates unlikely to go much lower, keeping them rising may take more good news than business will be able to deliver.
Since stocks bottomed in 1982, only the most inept investors have managed to lose money. Most have been racking up double-digit annual returns without much trying. Those days are over. “I don’t think we’ll have 15 percent returns as far as the eye can see,” says Jim Martin, head of the $52 billion College Retirement Equities Fund. That may prove a letdown to the hordes who spend Fridays glued to Wall Street Week.
“Hardly anyone is flying off the handle wanting to buy a hot stock,” says Wayne Jorgenson, managing director of Piper Jaffray in Bloomington, Minn. Thank goodness. But sobriety has its downside. If no one chases after glamour stocks, no stocks will have much glamour.
While Wall Street took a big tumble back in October 1987, the bad news was brief; by the year-end, prices were higher than they’d been the year before. An entire generation of investors has never experienced anything longer than a one-month drop in the market. Sooner or later, a correction is coming. When it does, will the novices race for the exits?
It is, in fact, entirely possible that last week’s excitement was just a mistake. Normally, as all investors know, stocks rally in January. Not in 1993: after starting out the new year a tad over 3300, the Dow Jones industrials spent the month going nowhere. Is last week’s good news merely the January Effect a few days late?
