New York Market: Stocks rally speeds on

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The Independent Online
THE rally that pushed US stocks back to record levels last week for the first time in more than four months shocked investors with its speed. Even so, there's plenty of fuel for further gains in the next several weeks, money managers say.

Stocks deserved to rebound from the July-October swoon that sent the Dow Jones Industrial Average down 19 percent, given that the economy is likely to avoid a recession in 1999 and corporate profits will grow modestly.

What's more, in October, a net $46bn (pounds 27.8bn) poured into money-market mutual funds. That's "money just sitting on the sidelines waiting to be put into use", said Francis Gannon, fund manager at SunAmerica Asset Management. "We're having a buying panic, and it's going to continue to move this market higher into the year end."

For the week, the Dow average rose 1.9 per cent to 9,333.08, after reaching a record 9,374.27 on Monday, its first high since 17 July. The S&P 500 closed the week at a record 1,192.29, up 2.5 per cent. The Nasdaq rallied 4.6 per cent to 2,016.44, its first record since 20 July.

The rally could have enough steam behind it to push the Dow industrials to the 10,000 milestone, said Charles Reinhard, a market strategist at ABN Amro.

In the past, a record in the market shortly after a decline of 10 per cent or more - which is what happened last week - has been a bullish signal, Mr Reinhard said. This has happened seven times since 1929, and the market gained an average of 7.1 per cent more after making a new high, he said.

The next peak on average occurs within three months after

the market fully recovers from its loss, said Mr Reinhard. A similar gain now would put the Dow industrials just over 10,000 by the end of February, he said.

That's the good news. The bad news is that that the next peak is usually followed by a "meaningful pullback", he warned. A decline that follows historical precedent would take the Dow industrials back down to 7,400 after it hits the 10,000 mark, he said.

Investors may be enjoying gains now at the risk of bigger losses next year or, as Mr Reinhard put it, "We're picking up nickels in front of steamrollers."

After their fast comeback, stocks now may be slightly higher than their fair value, said James Weiss at State Street Research & Management. Still, any time the market is at about fair value, any good news is likely to push it higher, he said.

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