Newspaper article THE JOURNAL RECORD

Growing Consumer Debt Limits Small Investors in Market

Newspaper article THE JOURNAL RECORD

Growing Consumer Debt Limits Small Investors in Market

Article excerpt

The stock market's recent rally, analysts say, has been propelled by institutional investing and program trading, set off by the belief that interest rates may have peaked.

The nation's small investors, by all accounts, are still wary of stocks, and are opting for safety, either in the money marets or in certificates of deposit.

Fear is not the only explanation for the small investor's strike against Wall Street. The tremendous explosion in consumer debt - especially in credit cards and home equity loans - in the last few years has limited the ability of small investors to participate in the securities market, by cutting into spendable income.

Sharply rising monthly interest payments on adjustable rate mortgages may also be cramping the investment style of many homeowners.

And the investing malaise is not limited to equities. Bond brokers, both municipal and corporate, report that retail-oriented business has slumped.

The flight of the small investor can be gleaned from figures provided in the American Stock Exchange's 1988 annual report.

The Amex is a generally recognized proxy for small-investor sentiment.

In 1988, 2.52 billion shares changed hands on the exchange, down 28.2 percent from the 3.51 billion shares of 1987. Bond business was off about 12 percent. Trading in stock options fell 36.5 percent.

Not all small investors have shied away from the markets, of course.

Charles Schwab & Co., the nation's largest discount brokerage, has reported a rebound in earnings that it attributes, in part, to the addition of 65,000 new accounts. And Fidelity Investments, the Boston mutual fund behemoth, is building its own discount brokerage unit.

But most of the action on Wall Street today is takeover-related, augmented by an occasional broad market fling sparked by the latest economic figure coming out of Washington, or in Thursday's case, out of Bonn. Stocks fell broadly after the West German central bank raised key interest rates.

Takeover activity may be good for headline writers, but it tends to discourage small investors further because it reinforces the feeling that the stock market is risky.

People are wary about the economy, which may be at a crossroads.

Recent data seem to indicate that the growth is slowing, and the stock market can interpret that in a number of ways.

If moderate, a slowdown can keep a lid on interest rates and inflation. That is normally good for stocks. But if the economy slips into a recession, that would hurt stock prices. …

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