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Wall Street Takes Dim View of Market

ECONOMIC recovery may finally be under way in the United States. But that doesn't mean that the bulls are about to stampede the corridors of Wall Street. Indeed, there's a pervasive caution - even pessimism - here about prospects for the stock market during the months ahead.Case in point: the July 1 issue of Barron's. The financial weekly talked to nine top market experts in the US; based on that discussion, no one in the group could be accused of trying to upstage Robin Williams as a stand-up comic. The discussion produced such gloomy phrases as "rugged market,terrible summer,tough time," "go down." It's not that the stock market hasn't grown during the past half year. Since January the market, as measured by the Dow Jones industrial average, has gone from the 2,500 point range to an all-time high of 3,035.33 points on June 3 - and remains above 2,900 as of this writing. The Dow shot up almost 11 percent in the first quarter; dropped a slight 0.2 percent in the second quarter. For most small investors - who now tend to buy mutual funds, rather than individual equities from brokers - the news was also fairly upbeat: the average stock fund gained more than 14 percent during the first half-year, notes Lipper Analytical Services. Early last week it looked as if a new market rally was in the offing. US stocks shot up 51.66 points on July 1 (the same day as Barron's cautious assessment), following news that the Bank of Japan had lowered its discount rate from 6 percent to 5.5 percent. Wall Street interpreted Tokyo's action as helping to hold down US interest rates. So is the current dourness so evident here justified? "Defensive caution is well to the point," says Larry Wachtel, a vice president with Prudential Securities Inc. Investors, says Mr. Wachtel, are up against high valuation levels, "lousy" second-quarter earnings, and "a Federal Reserve Board that is no longer accommodating" towards interest rate cuts; but interest-rate cuts are seen as crucial in ensuring future gains for the market. Wall Street's challenge is that the "upside" trading range for the market is perceived as being not too far out front of where we are now at on the Dow. Heiko Thieme, of Thieme Associates, who publishes a market newsletter, believes that the trading range for the Dow is somewhere between 2,850 and 3,100. But Mr. Thieme feels that there is room for movement on the upside - towards the 3,100 range. Historically, he notes, there has been a summer rally every year since 1940, with the single exception of 198 1. And May turned out to be quite good, with the Dow gaining over 4 percent. That's unusual, since May is traditionally lackluster. Dennis Jarrett, who follows technical data for Kidder, Peabody & Co., also sees the market remaining in a relatively tight trading range of between 2,850 and 3,050 on the Dow. A number of factors worry Mr. Jarrett, including substantial selling of stock recently by insiders - corporate officers and other key officials who own shares in their own companies. Moreover, he notes, there are now many days where new lows exceed new highs on the Dow. Finally, he frets about the continued flow of money out of the market into cash. During June alone, some $4.5 billion left the market; since mid-April, there has been a net outflow of $9 billion. Jarrett argues that if the Dow dips below the 2,850 point, then the market could quickly move towards 2,600 points. Still, it would be incorrect to suggest that no one sees an upturn. Thieme argues that, despite risk, there is upside potential for the market. And James Stack, who publishes InvesTech, a newsletter, sees no significant correction for now. If so many market watchers are pessimistic, then it's time, he argues, to look towards eventual gains. He sees "new highs later this summer, perhaps in August and September." Where the market winds up in 1991 is anyone's guess. Caution is now the watchword. But economic recovery should eventually translate into corporate profits; and profits should - eventually - boost the market.

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