Wall Streeters have been watching with a mixture of exhilaration and uneasiness as the stock market makes a new assault on the 3,000 level in the Dow Jones industrial average.
Analysts say the approach of that milestone seems to underscore the message the market has been sending lately: That the nation, fresh from a decisive military victory in the Middle East, will soon see evidence of recovery from the recession in the domestic economy.At the same time, however, even the congenital optimists of the financial world wonder whether the celebration is getting out of hand.
"The message of the market is that the economy's going to recover, and that it's going to be a much stronger recovery than people have been expecting," said Hugh Johnson at First Albany Corp. in Albany, N.Y.
"In some ways it's a little scary. You can almost get a nosebleed when you look at the levels some stocks are trading at.
"The market is sending a message, and it had better be right," Johnson added, "or else it has gone too far too fast. Sooner or later investors are going to demand solid signs that a strong recovery is in fact what's going to happen."
Or as Irwin Yamamoto, publisher of an investment advisory service in Kahului, Hawaii, put it, "At this lofty level, the Dow Jones industrial average portrays a near-perfect situation.
"That is why I believe this market could be in deep trouble down the road. Everything must come out just right. There's no room for mistakes."
The market is often celebrated for its ability to defy the worriers and the skeptics. When stocks began their current rally late last year, for instance, gloom abounded about both the recession and the situation in the Persian Gulf.
It is axiomatic in investing that those who get into arguments with the market seldom win.
But right now, many observers see reason enough for caution in the gauges they watch for signs of whether stocks are cheap or expensive.
For one thing, the typical large stock now trades at about 17 times the annual earnings per share of the company it represents.
This price-earnings ratio stands at an "overvalued" level, according to Wright Investors' Service of Bridgeport, Conn., especially given the current level of interest rates.
"The market is now vulnerable to correction," Wright argues, "because it is unlikely that interest rates will fall fast enough or corporate profits will increase fast enough to justify current valuations. War-related euphoria and institutional buying panic cannot support the market ad infinitum."
The Insider, an advisory service in Fort Lauderdale, Fla., points out that top executives, directors and major shareholders have lately turned wary after buying their companies' stocks heavily through the latter stages of 1990.
The firm said late last month that these presumably savvy investors were not yet flashing any dire warnings. But if one uses their behavior as a guideline, said editor Norman Fosback, "it is, frankly, a bit too late to be buying."
Stock traders do have a few tangible signs to go on as they look toward better economic times.
One notable stimulant: The Federal Reserve's recent moves to relax its credit policy, pushing interest rates lower and helping to speed up the growth of the money supply.
These developments "are all good signs and they are the leading indicators of change," said Michael Sherman at Shearson Lehman Brothers Inc. "But the actual benefit of economic activity can lag for months."
Observed Johnson, "There are faint signs of recovery. Now we need stronger signs."