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MARKET STRONG, DESPITE BEARISH GROWLINGS

"Each wave of bearish news that sweeps over the stock market seems to ebb back out to sea, be it inflation fears, more hand-wringing about weak earnings, or another unsettling interest rate increase by the Fed," observes U.S. Investment Report (25 Fifth Ave., New York, N.Y. 10003). "But the earnings gains keep coming, inflation remains in check, and the economic numbers continue to look good. We're going back over 4,000 on the Dow, unless the Fed goes completely crazy."

- American Capital Emerging Growth Fund has appreciated an average 16.9 percent annually over the past five years, almost twice as much as the average stock fund. It's accomplished this by trying to find the best small growth companies in a wide variety of industry sectors, companies with rising earnings estimates, improving profit margins and accelerating revenue growth. Recent favorites: IDB Communications Group, Promus, Pyxis, Solectron, Sybase, Callaway Golf, General Nutrition.- The graying of America and health-care reform both bode well for the drugstore stocks, says Minneapolis-based Piper Jaffray. "From 1981 to 1990, the U.S. population grew 1 percent annually. The number of pharmaceutical prescriptions grew 1.5 percent annually. Health-care reform would mean millions more Americans would have access to prescriptions." P.J.'s favorite drugstore stocks: Big B, Genovese Drug, Revco, Walgreen.

- An uptick in inflation would be good news for Canada, whose economy is dominated by natural resource industries, suggests Fortune magazine: "Canadian manufacturers have gotten lean in recent years, so higher prices will mean higher profits. Beneficiaries include Alcan (aluminum), Inco (nickel), Cominco (zinc/lead), Aur Resources (copper) and Noranda, with interests in all these areas. Mutual fund plays include Fidelity Canada and Mackenzie Canada."

- "The biggest risk in today's municipal bond market is the lack of diversity among buyers," says Vanguard's Ian MacKinnon. Forbes agrees: "Before the 1986 tax reform, banks and insurers owned lots of munis. But now 25 percent of munis are owned by mutual and money market funds, with individuals holding most of the rest. If individuals panic, there won't be as many corporate buyers around to absorb the selling. A flood of redemption orders could kill prices."

- Morningstar Mutuals (225 W. Wacker Drive, Chicago, Ill. 60606) now includes tax-adjusted returns in its fund reports. It also divides after-tax returns by pre-tax returns to show which funds control taxes best. Top funds in terms of total return for the past three years on a tax-adjusted basis: Putnam New Opportunities A for aggressive growth (46.8 percent annualized), Berger 100 for growth (39.8 percent), Oppenheimer Main Street Income and Growth for growth-and-income (38.0 percent).

- Ted Benna, the benefits consultant who discovered the tax loophole that is the basis of today's 401 plans, has started a new organization to help members make the most of their retirement investing. It's called The 401 Association (One Summit Square, Doublewoods Road and Route 413, Langhorne, Pa. 19047). Benna's basic advice for 401 participants: 1. Start investing early. 2. Contribute as much as possible. 3. Leave the money alone, even if you leave your job. 4. Don't invest your money too conservatively in low-yielding fixed-income accounts. 5. Lobby your employer for more 401 investment options.

Investor's Notebook reflects the opinions of professionals. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.