LIKE an airplane on automatic pilot - flying right on through the clouds - the United States stock market continues to advance, irrespective of last week's hike in short-term interest rates by the Federal Reserve Board.
Last week's quarter-point hike in short-term rates ``turned out to be a non-event,'' says Gene Jay Seagle, vice president and director of technical research for Gruntal & Company, a New York investment house. ``If anything, it was probably more of a positive than a negative, since the Fed showed the investment community that it is not about to let new inflationary pressures develop in the economy.''
``We're still in a bull market,'' Mr. Seagle says.
The current bull market is now in its 40th month, which makes this one of the longest cycles of expanding stock prices in recent history. Despite the 96 point drop in the Dow Jones Industrial Average last Friday - the Dow's worst loss in two years - the market opened this week on an uptick. The Dow recaptured 34 points Monday. The market high for the Dow this year is 3,978.36, recorded Jan. 31. Many stock technicians say the Dow will again push the 4,000-point level in the weeks ahead. Besides the Dow, broader indexes, such as NASDAQ and the Standard & Poor's 500, also inched back upward, following momentary declines last Friday.
``Things have not really changed'' in the stock market environment, says Hildegard Zagorski, a vice president with Prudential Securities Inc. Last week's decline was a ``knee-jerk reaction'' to the rate boost, she says.
``The US economy is doing far better than had been the case; interest rates remain low; stocks still provide more favorable overall returns than alternative investments; the flow of new funds into mutual funds has not abated; interest rates were just cut in [Britain], which is good news for American companies that export abroad,'' Ms. Zagorski says. ``In other words, nothing is different except that short-term rates moved up slightly. But that by itself will not stop this bull market.''
``There could still be a gradual decline of 5 to 7 percent,'' she adds, but this would not be considered a major correction.
Last weekend, several White House economic officials were quoted as suggesting that an additional quarter-point hike in short-term rates may occur in the months ahead. Zagorski says she is not convinced that the Fed will raise rates again this quarter, however. ``The first quarter, in part because of all the bad weather in many parts of the United States, may prove much weaker than the fourth quarter of 1993,'' she says. ``If that is the case, the Fed will probably sit back and avoid pushing up rates.''
``It is a fact that interest rates are moving back up,'' says Rao Chalasani, chief investment strategist with Kemper Securities Inc., an investment house based in Chicago. ``We think that short-term rates could go up by 75 to 100 basis points by the end of 1994. That would not be enough to derail the US economy, but it could have a [downward] impact on the stock market.''
``The reason is that this particular bull market is not based on the valuation levels'' of individual companies, but ``low interest rates,'' which make stocks attractive against competing investments. But if interest rates continue to rise, that advantage erodes, Mr. Chalasani says.
Among his other predictions: The stock market will be more volatile this year than in 1993. US economic growth should reach 3 percent; and inflation will be in the 3 percent to 3.5 percent range. Overseas interest rates should continue to fall, he says. That, in turn, will benefit US firms.