The Dow surpasses all expectations

IF the Dow Jones Industrial Average matched this month's performance for the next eight months, the benchmark would close 1999 having tripled. The average has already surpassed most of the optimistic analysts' predictions for the year, prompting even the most bullish strategists to boost their estimates.

Peter Canelo, investment strategist for Morgan Stanley Dean Witter, said he now expects to see the Dow between 11,400 and 11,600 at the end of the year. "I'm not sure it will stop there," he added. His target had been 10,250.

Since the Dow first closed above 10,000 on 29 March, the average gained 8 per cent more to 10,789.04. Better than expected earnings provided some of the impetus for target revisions, and may prompt more such changes later. Jeff Applegate, at Lehman Brothers, raised his target on the Dow to 11,500 from 11,000 and may raise it again "if earnings surprise again on the upside".

Individual investors are optimistic, too. Fidelity Investments said flows to its equity funds rose 77 per cent in April. Charles Schwab saw flows to stock funds in its mutual fund supermarkets surge six-fold.

"I feel better about the market than I did at the beginning of the year," said Marshall Acuff, an equity strategist at Salomon Smith Barney. "We now seem to be in a period where there are rising earnings expectations." The market's best-known optimist, Goldman Sachs' Abby Joseph Cohen, called first-quarter profit reports "absolutely stunning", and indicated she's prepared to raise her year-end forecast from the current 10,300 once most firms have reported.

Strategists said economic growth that shows no sign of faltering has got investors excited about stock. "The global economy is not falling apart and there is no slowing in the US economy," said Morgan Stanley's Peter Canelo. "Durable goods orders are higher and that's important for the cyclicals in the Dow."

GDP grew at a 4.5 per cent annual rate in the first quarter, above expectations for a 3.4 per cent pace.

So-called cyclical stocks, which lagged growth stocks in recent years, rallied in the last two weeks on anticipation they will benefit the most from global growth.

Investors and strategists are alert for any event that may cloud the rosy future. "There won't be a cataclysmic decline but the market is priced for perfection," said Martin Sass, president of MD Sass Investor Services.

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