Investors are still concerned that the economic crisis in Asia will be a drag on US earnings to some degree. Still, they say the most recent quarterly financial reports from corporate America indicate the 15-year bull market will ramble on.
"We now think things aren't as bad as we once thought," said Michael Weiner, a money manager at Banc One Investment Advisors. "What's happening is we're returning to a period of normalcy in profits."
"Normalcy" to Weiner means 7 per cent profit growth among companies in the Standard & Poor's 500 Index. Last year, S&P profits rose about 12 per cent. Stocks in the S&P returned 1.3 per cent so far this year, and at this rate will return 18 per cent for the whole of 1998. That is better than average: The S&P returned 10.7 per cent a year from 1926 to 1996. In 1997, the S&P returned 6.3 per cent in January and 33 per cent for the year.
Still, few stock market investors are as smug as they look ahead. "What a company says about fourth-quarter profits is not as relevant as what it says about the future," said James Weiss, investment officer at State Street Research Investment Services. "It's so difficult to know what the impact of Asia will be on the US."
There have been ominous signals. IBM's shares fell 8 per cent the day after the world's largest computer company warned of lower first-quarter earnings because of a sales slowdown in Japan. All told, IBM shares are down 5 per cent this year.
Other Asian casualties have been more dramatic. Tupperware Corp is off more than 7 per cent in 1998 and down 46 per cent in the past 12 months. It warned that first-quarter profit will drop because of poor international sales of its plastic food and other household containers.
Weiss said several cross-currents are at work. For example, while US exports may decline, so will costs of companies that have operations in Asia. "Overall, we don't think the impact will be severe at all."
Robert Morris, director of equity investments at Lord, Abbett & Company, said he was emphasising companies that derive most of their profits in the US. "It's better to be safe than sorry," he said.
In the bond market some investors are betting that January's gains presage another banner year. "We're heading to 5.5 per cent by the second half of the year," said Carl Ericson, fixed-income manager for Colonial Management in Boston.
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