NEW YORK -- Dow 9,000.
After the downs and ups experienced by the stock market since late summer (a pattern repeated in miniature this very week), and given the strength of both the positive and negative influences liable to swing this market, a Dow Jones Industrial Average year-end closing level of about 9,000 feels right.Of course, that's where the DJIA is ending this wacky week (9,016 to be exact). But don't expect the few weeks left in 1998 to transpire without more volatility. If there's one thing certain in this market, it's volatility. Trading as the year-end approaches will have the potential for even more volatility as institutional investors and mutual fund managers decide to hunker down and protect hard-won 1998 profits.
The contrasts at large in the market and the U.S. economic outlook are quite remarkable right now. Let's start with the economy. Fears of a recession in 1999 have subsided, despite Asian economic malaise. But the growth now being experienced in the economy is of a peculiar kind -- it's coming without much in the way of corporate profits. Some commodity prices (oil, copper) behave as if there's a worldwide slump.
The job market is a puzzle in itself. According to just released data on November, the job market remains tight (4.4 percent unemployment rate) but wage inflation is nowhere to be seen. In the early days of December, we've seen more manufacturing job cutbacks (Boeing Corp., the potential result of a merger between Exxon and Mobil). But data show services jobs continue to boom.
The consumer continues to drive the economy, but warnings abound about spending outpacing savings. How long can the big spending go on?
Meanwhile in the stock market there also are crosscurrents aplenty. Valuations are still high, especially given the expectation that rosy earnings forecasts for 1999 are likely to head toward reality, which means down. Some areas of the market (certain Internet-related stocks) have flirted with mania. The overseas economic and market situation showed signs of vulnerability (bleak Japanese economic statistics, Brazilian congressional balking at an austerity plan). There's likely to be more bleak news.
On the plus side, psychology is generally positive. Inflation is low, as are bond yields. Bonds don't offer much competition for investment dollars. And perhaps the most positive going for stocks is the Federal Reserve's apparent resolve not to let this economy stall. There won't likely be another rate cut in 1998, but the three cuts this fall left a formidable calling card. The coordinated European rate cuts of Thursday show the worldwide central banker consensus now sees resisting recession as the current war.
The Fed's biggest dilemma, perhaps, heading into 1999 will be how to conduct monetary policy in the face of a stronger-than-expected U.S. economy accompanied by continued strains in some fixed-income sectors based on continued problems in Asia or Latin America.
Bottom line for the stock market may well be an elaborate wash. Dow 9,000. That would represent a 13.8 percent gain from Dec. 31, 1997.
Neal Lipschutz is the Managing Editor of the Dow Jones News Service.