NEW YORK AND BOSTON
This bull's horns just keep getting longer.
In a lunch-hour rally, the Dow Jones industrial average crossed the 7000
barrier Thursday and closed at 7022.82, just four months after closing above 6000 for the first time. The Dow's momentum has impressed even the most optimistic forecasters.
How high can it go? And when will the bull market end? Not only Wall Street traders, but also millions of Americans who have been pouring money into stock mutual-funds, would like to know.
The market's future direction, many analysts agree, depends on the same factors that have taken the Dow this far: corporate earnings and interest rates. Plus a little help from President Clinton and Congress.
"Once the yield on long term bonds came back down [below 7 percent] in late January, I was pretty confident that we'd see another surge in the stock market - and we have," says Jeremy Siegel, a professor of finance at the University of Pennsylvania's Wharton School in Philadelphia.
"Corporate earnings in the fourth quarter were above expectations," he adds. "It was definitely a banner quarter," raising hopes that earnings for the whole year will also beat forecasts. Al Kugel, a senior investment strategist at Stein Roe & Farnham in Chicago, says the market has been inspired by Mr. Clinton's reelection. "Investors suddenly realized we were going to have more years of the same political environment - the same mix with a Democratic president and Republican Congress - and said, 'Hey, we've made a lot of money with this combination.' " Signs that a deficit-cutting budget deal may be in the works have bolstered this view.
The strong dollar, luring foreign money, is another propelling factor, Mr.
Kugel says. With the dollar up 25 percent in the past two years, foreign
investors are riding both the Dow and the dollar.
The broader Standard & Poor's 500 index may be an even more striking
testimonial to the current momentum than the 30-stock Dow index. On Wednesday, the S&P 500 closed above the 800 point level for the first time.
"The gain was remarkable, since it only hit the 700 point level in early
October" of 1996, says Arnold Kaufman, editor of The Outlook, published by Standard & Poor's Corp. "It took just five months to move up another 14 percent from its last high."
James Stack, a market analyst who publishes InvesTech, a newsletter, calls the current euphoria "an emotional feeding frenzy."
But even while the S&P 500 was setting a new high on Wednesday, a record number of companies were also hitting new lows for the year on the Nasdaq market, where many small companies are listed, Mr. Stack notes.
When might the bull market get tired? Mr. Siegel says to watch bond yields. If interest rates rise to 7 percent, red flags might go up. Rising interest rates hurt corporate profits and cause some investors to see bonds as more attractive than stocks.
But for now, the interest-rate climate looks tame. "There's no sign of a
recession," he says. "Economic growth looks strong," but not so rapid that the Federal Reserve will tighten rates.
Siegel sees some clouds on a three-year investing horizon, but long-term he is bullish on stocks, even at their current levels. "I don't regard these
valuations as scarily high."
The Dow will hit 7500 by the end of 1997, predicts Peggy Farley, chief
executive officer of AMAS Securities Inc. in New York. Still, she says there could be a modest decline of 10 percent or less this year, largely because the high dollar makes US exports expensive abroad.
Staff writer Ron Scherer in New York contributed to this story.