Stock Market Bears Are on the March
David Francis, writer of The Christian Science Monitor, The Christian Science Monitor
Maurice Larrain and Maureen Allyn could be described as stock market party poopers.
Both economists forecast a tumble in share prices. Mr. Larrain, proprietor of International Capital Management Corp. in New York, foresees a 20 percent drop in prices in October. Mrs. Allyn, chief economist of Scudder, Stevens & Clark Inc., an investment management firm in New York, is less precise on timing, but talks of a 10 to 11 percent dip.
"There is some room for disappointment," she says mildly.
Both also forecast recession. Larrain, a Pace University economist who set up a sideline of offering financial and economic advice to major financial institutions, says the slump will come "this fall, if not earlier." Allyn sees a mild recession starting in the second half.
But most economists expect modest real growth to continue this year.
On Wall Street, the mood shifted earlier this week to the bearish side, with stock prices slipping Tuesday and Wednesday, after a long climb in prices. Though mutual-fund investors have been putting more money into aggressive-growth funds that have a greater degree of risk and volatility, a number of major brokerage houses have been advising investors to cut their allocation to stocks and raise cash positions. These include Merrill Lynch, Morgan Stanley, Dean Witter, Smith Barney, and UBS Securities.
"Investors should be thankful for the bears," maintains Arnold Moskowitz, a Wall Street economist with a more cheery view of stocks. "Without them, the market couldn't climb a wall of worry."
Bears are concerned about the low dividend yield on stocks, the lack of a 10 percent "correction" in the past six years, and high prices compared with earnings. The price-earnings ratio for the Standard & Poor's 500 stock index is 19.4 on the basis of the last 12 months of earnings, a high level historically.
If earnings rise over the next 12 months, as Michael Flament, an economist with Wright Investors' Service, money managers in Bridgeport, Conn., expects, the P-E ratio will slip to 17.2. "That is high, but closer to the long-term average, Mr. Flament says.
But Allyn expects corporate profits to fall 10 percent this year, instead of rising 10 percent or so, as many analysts anticipate. She figures the Federal Reserve's move to hike interest rates in November 1994 and February 1995 put a drag on the economy. …