Frank Parrish, like a lot of other people, did not expect the stock market to surge like it did last week. Mr. Parrish, who is a senior vice-president at Fidelity Management Trust Company, a subsidiary of the Fidelity Group of mutual funds, comments: ''I've been predicting a correction. We all have been waiting for a correction. Maybe that's why it's going up.''
Mr. Parrish wasn't alone. When the market roared through the 1,100 level on Thursday, it surprised a lot of portfolio managers who had been waiting for the pullback that many stock-market analysts said was overdue.
This observation was backed up by a Feb. 18 survey by INDATA, a Connecticut firm, of 650 equity-fund managers controlling $66 billion. According to the survey, the managers still had 12.2 percent of their assets in cash. By way of comparison, when the market started off on its surge last August, 16.9 percent of their assets were in cash.
However, as William Kennedy, a partner in the firm's Atlanta office, notes, the fund managers still have the same amount of cash reserves - but the value of their assets has risen substantially. ''What we see here,'' he says, ''is that some managers have spent some money and some have sold as well. The psychology is not fully invested yet.''
''Some aggressive managers were caught with large cash balances of 35 to 40 percent,'' says Michael O'Neill, vice-president of T. Rowe Price Associates.
They were caught with this cash in large part because they are paid to be aggressive. ''There are several hundred new portfolio managers,'' observes Jeremy Grantham, a partner of Grantham, Mayo, Van Otterloo & Co., a Boston investment-counseling firm that runs about $500 million in pension funds, ''and the overwhelming majority of them are paid to be aggressive.'' Mr. Grantham says they concentrate ''on anything exciting.'' This can be specialty retailers, high-technology stocks, or anything that is moving. And they increasingly try to time their purchases, which means there are times when they are loaded with cash.
In part, the portfolio managers had accumulated this cash because many of the services that specialize in predicting the market's future course were distinctly bearish.
Robert Farrell, Merrill Lynch's market forecaster, had predicted several weeks ago that the market was due for a 10 to 15 percent pullback. In its latest market letter to its retail clients, Merrill Lynch has continued to maintain this, noting that the market had developed ''an increasingly speculative tone,'' which could mean ''the advance is due a temporary respite.''
Alan Shaw, a technical analyst at Smith Barney, Harris Upham & Co., told his company's clients Tuesday that the short-term indicators ''are not in a position to support a major advance at this time.'' He added that he didn't feel ''a runaway bull (market) leg is at hand.''
Still another market analyst, Robert Stovall, first vice-president of Dean Witter Reynolds Inc., said he likewise felt a market correction was due. ''You have the majority of the market letters saying they are long-term optimistic, but think a correction is overdue,'' he says, ''which just goes to show you that the market often does what you think it will do, but not when you think it will.''
Mr. O'Neill of T. Rowe Price tends to agree with this observation. For example, he says he believes Mr. Farrell of Merrill Lynch has rightly picked out some weaknesses in the current market. ''Some of the smaller technical stocks are frothy,'' he comments, ''and a number of stocks are well above their 200-day moving average (a technical indicator).''
However, in spite of Mr. O'Neill's agreement that stocks may be overpriced, he remained fully invested last week. He contends investors can't measure this market by previous bull markets: ''It used to be that you sold when the Dow hit 1,000 and bought at 800. This is a different kind of market.''
Mr. Grantham agrees as well. Using reason, he says, investors can make a case that the market is overbought. The yield in the Standard & Poor's 500 average, he notes, is 4.5 percent, which is fairly low. ''Dividends aren't going to rise that much more this year,'' he says. He can make a case that the market, as judged by the S&P 500, could top out when the average hits 160, which is only 10 points away, he adds. At that point, the S&P will be yielding 4 percent. However , he says: ''In my stomach I feel we are going to set historic highs. . . . We have every reason to suppose the next recession is two to three years off. This gives an excellent shot for the speculative forces to set new records.''
Still, there is a feeling among some portfolio managers that this is not the start of a new leg in the bull market. Mr. Parrish of Fidelity says the market ''went up so fast that we ought to have a correction.'' He says that once the Dow hits the 1,150 mark, it might fall 10 to 15 percent - back to the 1,000 level.
And Hans Schueren, a vice-president and market analyst at Merrill Lynch, says he is confident this will in fact happen. ''Maybe the Dow will get to the 1,150 to 1,160 level,'' he says, ''but the enthusiasm will not carry it any further.''
For the first time in years, Wall Street was faced with nothing but bullish news. Oil prices were falling, Paul Volcker said he thought the banks could lower the prime interest rate - which they promptly did - and the economy continued to show signs of recovery. Faced with this news, the market soared. The Dow Jones industrial average crested and stayed above the 1,100 level on Thursday, when it closed at 1,121.81. For the week, the Dow closed at 1,120.94, up 0.87 points. Volume was active.
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