The mood of Wall Street's stock market forecasters is distinctly downbeat as they look ahead to 1990.
That's pretty unusual in an industry known for diehard optimism. Some observers suggest it may be influenced by the depressed state of the securities business as much as by the behavior of stock prices, which still stand near record highs.Whatever the source of the seers' misgivings, it strikes one group of observers as a healthy rather than a troublesome sign.
These followers of the doctrine of "contrary opinion" believe that the more wary the mood, the better are the market's chances to do well.
Richard Hoey, chief economist at Drexel Burnham Lambert Inc., says his November survey of 171 managers and analysts at investing institutions turned up the lowest enthusiasm for the stock market outlook since he began conducting his periodic "decisionmakers poll" in 1983.
Just 11.1 percent of the respondents said they expected stocks three months hence to be in a bull market, while 52.1 percent forecast a bear market and 36.8 percent said they were looking for a "neutral atmosphere."
In addition, Hoey reported, "there was a dramatic rise in the consensus probability of a stock market crash in the U.S. in the next two years, to 42.5 percent from 26.6 percent in August."
By contrast, Hoey's respondents were emphatically bullish about the chances for higher bond prices (and thus lower long-term interest rates), with bulls outnumbering bears by better than four to one.
Investors Intelligence of New Rochelle, N.Y., finds no such extremes in its weekly survey of 130 independent advisory services on the stock market.
But its late-November tally of 46.2 bulls, 34.5 percent bears and 19.3 percent in the camp looking for a "correction," or short-term pullback, hardly qualifies as a ringing note of optimism.
Given the background of a seven-year bull market that has brought bountiful rewards to people who owned just about any category of financial investment, why so much doubt?
For one thing, some analysts say, the economy is slowing, and so has the expansion of money and credit that helped fuel the investment boom in the 1980s.
"Slower money and credit growth would suggest that investors will have to grapple with the question of how to invest in a lower growth economy," said Charles Clough, chief investment strategist at Merrill Lynch, in the firm's annual appraisal of the outlook.
"After a decade of dynamic investment returns in the financial markets," he added, "investors are likely to find that, in a lower growth economy, annual returns from bonds, stocks and especially money market instruments are likely to be of far more modest proportions."
In the 1990s, Clough suggests, money may tend to find a home in business projects that increase productivity "rather than in real estate or financial assets.
"This is a two-edged sword for the financial markets. It makes for a more productive economy, but it also leads to a drain of liquidity from financial assets."
Confirmed "contrarians," however, may be undaunted by all these seemingly negative numbers and words. They believe, essentially, that gloom works to build a store of untapped future demand for stocks, while euphoria exhausts investors' buying power.
Hoey noted that his survey has no record of predicting major bear markets, since no such prolonged decline has occurred since he started the poll seven years ago.
But he observes, "the stock sentiment survey has been a very useful contrary opinion indicator when it has hit extreme levels."
In August of 1987, he noted, bullish sentiment reached 57.2 percent just before the slide that culminated in the Oct. 19 Black Monday crash.
In January 1988, when the market was just beginning to launch a powerful recovery from the crash, the ranks of the bulls had thinned to 12.4 percent.