Newspaper article THE JOURNAL RECORD

Market Outlook: Still Hazy after All These Years

Newspaper article THE JOURNAL RECORD

Market Outlook: Still Hazy after All These Years

Article excerpt

NEW YORK -- Almost 17 years after the start of one of the mightiest bull markets in financial history, investors are still faced with the stubborn question "How high is too high?"

The Wall Street boom traces its origins to August 1982, when the Dow Jones Industrial Average began to climb from a low point of 777.

Just a few months later, when the average surged past its previous closing peak of 1,052, set a decade before in January 1973, analysts began to fret that it had climbed too far, too fast, and had moved into dangerous "overvalued" territory.

With few interruptions, they've been worrying about the same issue ever since.

The intensity of the debate reached a new level in December 1996, more than 2 1/2 years ago, when chairman Alan Greenspan of the Federal Reserve Board first voiced his concern over "irrational exuberance" in the market. But that didn't slow the bull's progress in the slightest.

The Dow, which stood in the mid-6,000s at the time of Greenspan's first warning, went on to soar past 11,000 this year.

Presumably, Greenspan and other Fed policymakers had concern about inflating prices of financial assets very much in mind when they acted last week to nudge short-term interest rates higher.

But once stock-market participants have decided on a way of looking at things, it's not easy to change their attitude. On Thursday, the day of the Fed's restraining action, stock prices jumped ahead, carrying the Dow within 2 percentage points of its all- time high and lifting some other, broader market measures to record levels.

Thus, even after a round of credit-tightening, the model used by the Fed to gauge the level of the stock market remains "grossly overvalued," in the words of Edward Yardeni, chief economist at the investment firm of Deutsche Bank Alex. Brown. "I see a great deal of risk," he says. …

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