New York Market: Investors remain unconvinced

DON'T get carried away by interest-rate cuts from France to Finland and reports of robust American job growth: US investors are concerned that stock prices are too high because profit growth is likely to weaken.

"The economy is still chugging along, but we're seeing a slowdown in global demand, and it will have an effect on US and global economies," said Nelson Woodard, director at Dreman Value Management. "Monetary policy isn't enough to fix it."

Optimistic investors had all the positive news they needed last week. Eleven European countries unexpectedly cut interest rates; a reassuring sign that monetary authorities are taking steps to head off a global recession and ensure corporate profit growth.

The US added more jobs in November than forecast and the unemployment rate fell to 4.4 per cent, the lowest since May, increasing expectations that consumer spending will boost sales and earnings.

Strength in services and construction offset job cuts in manufacturing.

Yet even with the good economic reports, stocks fell. The Dow average dropped 3.4 per cent to 9,016.14 and the S&P 500 closed at 1,176.59, down 1.3 percent.

The worst performer was Boeing, which sank 21 per cent after the plane manufacturer slashed production and warned earnings will fall as much as 25 per cent short of estimates as recessions in Asia cut demand. Retailer Sears, Roebuck also said earnings would fall short of forecasts, and slid 11 per cent.

As a result of these and other warnings, analysts have trimmed estimates for fourth-quarter earnings growth to 5.2 per cent from 9.3 per cent at the beginning of October. Estimates for 1999, though, remain little changed at 18.8 per cent. "There's a rose-coloured outlook for next year's economy," said Ned Riley, chief investment officer at BankBoston. "Over the next couple of weeks, we'll see companies setting more realistic outlooks." Mr Riley has been buying bonds, rather than companies that need a growing economy to boost profits. "Slower growth next year means perpetuation of low inflation," he said.

Ted Neild, at Nuveen Advisory, says: "The long bond is in good shape," and sees the benchmark 30-year Treasury yield falling toward 4.5 per cent in six months from 5.04 per cent.