Are Wall Street Bulls Risking a Bad Fall?

BUOYED by the easing of credit by the Federal Reserve Board and prospects for an upturn in the United States economy during the first half of 1991 - as well as coalition successes in the Gulf - the bulls have been rampaging through Wall Street. The big question mark: Will the bulls finally rout the bears that have intimidated this market for the past year. During the past four weeks the market, as measured by the Dow Jones industrial average, has shot up 17 percent. The Dow hit bottom on Oct. 11 of last year, plummeting to 2,365.10 points. On Jan. 16, 1991 - as allied jets began their merciless pounding of Iraqi targets - the Dow stood at 2,508.91 points. By last week, the market had risen to 2,909.16 points on Feb. 13 - galloping towards the Dow's all-time high recorded July 16 and 17 of last year; on those two days the market reached 2,999.75 points. Not only is the Dow up, but so are other key measurements, such as the Standard & Poor's 500 index and the New York Stock Exchange composite index.

Enthusiasts now talk about a broad-based advance, with the Dow smashing through the 3,000-point barrier and heading towards 3,600 points.

``What are the fundamentals?'' asks Hildegard Zagorski, a market analyst with Prudential-Bache Securities Inc. ``Easy money. That's the fundamental. Lower interest rates. We've had two discount rate cuts by the Fed and a loosening of reserve requirements for lending institutions. The war is going well for the allies. So the expectation is that the recession will shortly bottom out.''

``We [Prudential-Bache] were assuming we'd reach 3,100 points [on the Dow] by the end of this year. Now it looks like we might reach it by the end of February.''

``There's a lot of money sitting on the sidelines waiting to be invested,'' says Laszlo Birinyi, who heads up Birinyi Associates, an investment and consulting firm here. He sees the only real investment alternatives for money today as stocks and perhaps some long-term bonds. With short-term interest rates dropping, money market accounts and bank certificates of deposit don't look all that attractive, Mr. Birinyi says; nor do collectibles, commodities or real estate. He sees much money going into mutual funds.

``There's a feeling that nothing can go wrong.'' But maybe that's the time for alertness, says Birinyi.

``The market is likely to exceed 3,000 point on this leg,'' says Marshall Front, executive vice president with Stein, Roe & Farnham Inc., Chicago, an investment management firm. ``The market has had an unprecedented climb in recent weeks.'' Mr. Front believes that some ``breathing spells'' - pauses or corrections - will occur. But the momentary risk, he says, is about 100 points on the downside. Still, Front sees a slightly deeper correction sometime in spring-to-summer - about the time the economy emerges from the recession - and then another upswing. He believes the Dow could reach 3,200 to 3,500 points in the next year.

Not everyone would bet the house on the market. Market fundamentals, as well as broader economic fundamentals, are ``truly horrible,'' says Peter Eliades, who publishes ``Stockmarket Cycles,'' a newsletter in Los Angeles. Mr. Eliades concedes that the market is currently heading northward - in fact, he sees the possibility of the Dow exceeding 3,000 points by 100 to 200 points. But valuation levels, he argues, remain high. In 1982, at the beginning of the 1980s bull market, stocks were selling at or below book value. The market is now selling at over two times book value, Eliades notes. He believes the market is reminiscent of the late 1920s.

Raymond Worseck, chief economist of A.G. Edwards & Sons, a brokerage house based in St. Louis, believes investors are anticipating an economic recovery between spring and summer - and thus, visions of climbing corporate profits and earnings. But, given underlying problems such as slumping real estate values and high debt levels, ``there's still a reasonable doubt about when exactly the recession will end this year,'' he says.

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