New York Market: Bears lurk as the money pours in

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The Independent Online
Money poured into US stocks in the first week of 1999, even as analysts warned that stocks may be rising too fast and that a revival of inflation later this year could drive up interest rates, threatening a bull market now into its ninth year.

The Dow Jones Industrial Average closed above 9,600 for the first time, approaching the year-end targets of some of Wall Street's top strategists, as money streamed into retirement accounts and mutual funds. For the week, the average rose 5 per cent. "The amount of pessimism in the market has largely disappeared," said Timothy Ghriskey, manager at Dreyfus Corp. "People are more scared of being left behind, so the money gets thrown into the market."

Even strategists who raised some concerns weren't bearish on the overall market. Goldman Sachs' Abby Joseph Cohen, one of Wall Street's most bullish strategists, said last week that stocks may have risen too fast, and advised clients to trim their shareholdings. Yet she also said the current calm state of interest rates should let the economy grow, giving stocks room to rise.

Byron Wien, Morgan Stanley Dean Witter's director of investment strategy, said the economy's strength could revive inflation in six months, forcing borrowing costs higher - bad news for profits and shares. Still, he said the market "has a long way to go before it gets into real trouble".

So far, investors aren't too concerned. "What is driving this market is a firehose of liquidity," said James Griffin, market strategist at Aeltus Investment Management. Monetary policies aimed at fixing Russia's and Asia's financial woes are spurring "a huge ocean of money for the market, and the potential for that money to keep coming is very strong". In the first five days of 1999, the Dow average rose to a record 9,643.32. The S&P 500 closed at a record 1,275.09, up 3.7 per cent. The Nasdaq soared 6.9 per cent to a record 2,344.41.

Investors are paying less attention to companies' valuations than they should, Mr Ghriskey said, and "that is a long-term concern for the stock market. Eventually, investors have to focus on earnings."

Barton Biggs, strategist at Morgan Stanley, said: "Valuations are just ridiculous, and as the year progresses, earnings are going to disappoint. We're going to have a normal cyclical bear market, which we're overdue for."

Investors' optimism will get a reality test in coming weeks as companies report fourth-quarter earnings. Banks are due to report this week.

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