Newspaper article The Christian Science Monitor

Hare Today ... Where Tomorrow? Mutual Funds Finished 1998 with Breathtaking Results. but Expected Market Volatility Leaves Little Consensus on the Pace For1999

Newspaper article The Christian Science Monitor

Hare Today ... Where Tomorrow? Mutual Funds Finished 1998 with Breathtaking Results. but Expected Market Volatility Leaves Little Consensus on the Pace For1999

Article excerpt

A last-minute cavalry rescue ride ... a nick-of-time parachute opening ... a last-second, diving end-zone catch clinches a come- from-behind win.

Go ahead, choose the juiciest comeback clich. None can express the jaw-dropping audacity of last quarter's rebound in US stock mutual funds.

They sprang, in early October, from out of the summer's tiger trap of losses. The market in the fourth quarter soared far away from fears of a liquidity crunch and global market chaos. It even shrugged off air attacks against Iraq and the first impeachment of a twice- elected United States president. "In a matter of weeks we went from complete, utter despair to complete jubilation," says Bill Meehan, chief market analyst at Cantor Fitzgerald in Stamford, Conn. "I don't know anyone, no matter how bullish, who thought we could regain in eight weeks all that we had lost," says Anthony O'Bryan, market analyst for A.G. Edwards in St. Louis. The Standard & Poor's 500 stock index logged a record fourth straight annual gain above 20 percent. So once again, autopilot investing paid off big: Mutual funds indexed to the S&P 500 beat more than 90 percent of funds that are actively managed. The typical fund manager yielded a pathetic average gain in 1998 of about 7 percent. Entering the millennium's final years, technology and especially Internet-related companies, seemed to be climbing the ether. Big, highly valued favorites, like Intel, recovered from a lousy 1997 and a headlong stumble in early 1998 to put high-tech in the lead among industry groups for the year. Another glitzy sector, entertainment, shared the winner's spotlight. Steadier, less glamorous sectors like clothing retailers and drug stores also shined. Among the impressive winners, there were many losers. Disinflation battered hard-asset sectors - real estate, energy, and basic materials. Financial stocks, Wall Street darlings in previous years, plunged during the market tumult that began in Russia last August. They never fully recovered. More important, the bounce back of the Dow Jones Industrial Average and S&P 500 lack "breadth," according to market lingo. A few hot stocks power the indexes, while others remain tepid at best, market analysts say. "The rebound started with a big base but then narrowed," says Mr. Meehan. "I would have thought investors would have learned the lessons from earlier in the year," when a small portion of stocks drove the precarious rise of many indexes, he says. The narrow base, high volatility, and Cecil B. De Mille comeback of the 1998 market affirms timeworn investment lessons for the new year: diversify and hold for the long term. The investors who suffered last year were those who focused on a sour sector or who hurled themselves into the tsunamis of selling from August to early October, analysts say. …

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