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Good news for the new year

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If you're looking for reasons to rationalize your angst because the October-November rally hit a rough patch, you've come to the wrong place.

There's more than enough gloom and doom to go around. What stock market investors need is for someone to point out that not all the news is bad and that there are many reasons to be hopeful for what the new year will bring.

Repeat after me: The stock market will rise again in 2003. Really. This is not just a lot of whistling by the graveyard. Why? Let me count the ways.

Once you get past concerns about Iraq, the loony tune in Pyongyang, the weak U.S. job market and fears of a weakening economy, most of the rest of the news is encouraging.

First, let's talk about the law of averages. We'll stipulate that the stock market can't be anthropomorphized. Therefore, it has no memory and doesn't know it has been down three straight years for the first time since 1939-41. If you believe in the law of averages, though, the odds of four straight down years seem long indeed. It happened only once in the 20th century, starting with the outset of the Great Depression in '29 and continuing through '32.

That was the market's biggest multiyear loss of the past 100 years, and the 2000-02 decline promises to be second-worst.

The fear of war makes 2003 a particularly interesting year, though. The 1939-41 period was marked by similar fears, which, unfortunately, became reality. The actual war years, however, were very good to investors.

Thus, while there are many reasons to abhor war, a decline in market fortunes isn't necessarily one of them.

As for the fundamentals themselves, they're a good bit better than many of the gloomsters let on. There may be a lot of disagreement about how to measure profits, but nearly everyone agrees that earnings are starting to improve, albeit slowly in many instances. If earnings continue to rise, so will stock prices.

Many are willing to believe the worst about the economy, but aside from frustratingly uneven growth, there's nothing to be glum about. Growth as measured by gross domestic product will probably come in at about 2.5 percent for 2002, which is better than most anyone expected this time last year. Inflation is a nonfactor, interest rates remain at historic lows, retail sales have been respectable despite a soft holiday buying season, housing sales are still strong, and the leading economic indicators are showing signs of life.

The bigger question mark is how the rest of the world will fare in 2003. This is critical to America's growth prospects.

Nevertheless, there is no reason to believe this year won't be a year of recovery for the stock market. It's not likely to soar, but at least it should again be heading in the right direction for a change.

New York Times News Service