US Market Watchers Announce the Arrival Of the Correction

ECONOMIC jitters are shaking up global stock markets, including the giant United States market. International investors are worried about rising interest rates, the threat of new inflationary pressures, the depth of the global economic recovery, and a possible stock market correction in the US.

They are asking if the US stock market, which has not had a correction of 10 percent or more since the fall of 1990, is now heading southward. A market fall in the US could spur declines overseas if US investors pulled out of equities or substantially slowed their purchases of overseas stocks. US market indexes fell early this week in hectic trading.

``The market downturn appears to be across the board,'' with US investors ``pulling back from both US as well as global issues,'' says Hildegard Zagorski, an analyst with Prudential Securities Inc. in New York. ``When the Federal Reserve Board raises interest rates, as it did [on Feb. 5], then everything seems to be quickly affected, including overseas markets.''

Emerging-market mutual funds, which invest in developing nations with rapidly expanding economies, she notes, have been dropping in value recently, along with such major US indexes as the Dow Jones industrial average, the Standard & Poor's 500, and the NASDAQ composite index.

Markets in London, Zurich, Paris, and Frankfurt also have shown signs of weakness.

US markets tumbled Tuesday following disclosure that the price component of the National Association Purchasing Management Index had shot up sharply in February, suggesting a new round of inflationary pressures in the US. The fourth-quarter 1993 US gross domestic product also was revised upward Tuesday to a 7.5 percent annual rate. The two reports startled US bond and equity markets.

``Much of the concern about interest rates and inflation is overdone in the US,'' says Arnold Kaufman, editor of The Outlook, a market report published by Standard & Poor's Corporation. ``We think that the [US] bond market will stabilize soon. The bond market, after all, began its decline late last year, well before the stock market correction.''

``But stocks could continue to weaken, despite a firming in the bond market,'' Mr. Kaufman adds. ``That parting of the ways [between the bond and stock markets] may mean that the `big' correction of 10 percent or more ... has finally arrived.''

If US investors shy away from US equities, ``they will probably also avoid overseas equities,'' Kaufman says, adding that the US market correction will be on the order of 5 percent to 10 percent, most likely closer to the latter.

Still, not all Wall Street analysts are convinced that a correction is at hand. Only time will tell, they say.

Billions of dollars in investor monies have been flowing into global stocks. At the beginning of 1993, the proportion of new equity fund monies going into international and global mutual funds was about 10 percent of the total invested in all equity funds, according to Donaldson, Lufkin & Jenrette Inc., an investment house. That shot up to 40 to 50 percent of the total by summer, and peaked at 60 percent in early December. Most analysts say that torrid pace would not continue if the US market moved into a correction and that small investors in particular would pull back from equities.

International economists continue to stress that global recovery remains on track and that inflation is not a serious threat. Delegates at the Group of Seven meeting in Germany last weekend insisted that global economic growth will continue. They downplayed the threat of new global inflation.

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