Stock Outlook: Lackluster Trading, Despite Recovery

SOME of the better sources of economic and investment information are the many stock market reports prepared by brokerage houses. The reports are usually free. And they are often packed with insights - both about individual stocks and the market.With a few exceptions these reports are now suggesting that the late summer of 1991 will be marked by sluggish economic growth, a limited stock market trading range, a lack of leadership in terms of any one sector gaining market dominance. Many reports speak of a possible market correction. The United States, says Kidder Peabody & Co. in one new study, is starting to enter an economic expansion phase. Now, with the recession ending it would seem logical that the stock market resume an upward course. Right? Unfortunately, that may not occur as quickly as investors might wish. Wall Street usually waits and watches for signs of an upturn - such as lower inflation, and lower interest rates. Trading for August is usually light - with many investors on vacation. But the big problem remains investor uncertainty - doubts about the extent of the recovery. There are some glimmers of hope: auto sales have picked up somewhat; the Federal Reserve last week again lowered short-term interest rates. But despite that, investors are nervous about the possibility of the US slipping back into recession. This leaves the market "trendless," with no clear themes, writes Dennis Jarrett, a Kidder analyst. Mr. Jarrett notes in a report that all seven major stock sectors in the Standard & Poor's 500 index appeared to show promise of being market performers - but without any sense of any one group gaining ascendancy. The seven sectors are: basic industries, consumer staples, consumer cyclicals, energy, finance, utilities, and science and technology. A number of important consumer stocks have been rising to all-time highs. But that is somewhat odd and not necessarily a vote of confidence in the market, since such stocks are usually bought during an economic downturn. A trendless summer might actually imply a dull summer, according to analyst Eric Miller in a study for Donaldson, Lufkin & Jenrette. At the same time, Mr. Miller is concerned about "potential surprises," such as another dip in the economy. And he notes the wild cards: risk in the Japanese stock market, and the complicated political situation in Eastern Europe and the Soviet Union. Still, Donaldson Lufkin & Jenrette maintains that since the economy is improving, there's still reason to give the "bullish case" more time to work out. Thus, DLJ has been putting more of its assets into equities than fixed-income investments. Finally, market reports have all been noting one important development: the strong performance this year of smaller stocks, as measured by NASDAQ. NASDAQ, the over-the-counter market, established a new record for trading volume for any six-month period in its 20-year history. For the period January through June, NASDAQ's share volume totaled 20.2 billion shares. That's up from the period May through October 1987, when 19.8 billion shares were traded. NASDAQ's dollar volume for the first six months of 1991 was $327.2 billion, compared to a previous high of $270 billion in the first half of 1987. In April NASDAQ's share volume actually exceeded that of the New York Stock Exchange by 100 million shares. For the first half of 1991, NASDAQ's total volume was roughly 90 percent of the NYSE. NASDAQ groups that are up include apparels, health services, pharmaceuti-cals, commercial banks in the Southwest and Midwest, communication equipment, restaurants, and retail trade.

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