In parts of Wall Street, Ralph Acampora is known as something of an oracle. As chief market technician for Prudential Securities, he uses charts to track and forecast stock-market trends, and his predictions in recent years have seemed outrageous - until the market met them. Here's what he sees next:
Where do you see the market going?
My target is not 9000. It is 10000 and slightly higher, in the next few months.
What are the driving forces?
You're getting a resurgence of interest in smaller, mid-cap names, and you're getting a lot of interest in cyclicals [companies that follow economic ups and downs] like paper and steel stocks. I think that is a huge turn-on, because it shows the economy is strong, and there is a lot of money out there - baby boomer money.
Doesn't a run for small-caps, companies worth $500 million or less, usually signal the end of a stock market cycle?
Only when they become excessive, and they are not even close to breaking a sweat.... No, I'm not worried. You have a combination of factors here. Last time we saw anything like this was in the early '60s. At that point, multiples expanded, which they are doing today. [That means investors value companies at higher multiples of their earnings.] Interest rates dropped dramatically, which they are in the process are doing. And I wouldn't be surprised if rates are below 5 percent or 5.5 percent before this is all over, maybe lower than that. [Today, 30-year Treasury bonds yield about 5.9 percent.]
In 1961, stock multiples and inflation hit today's levels. By mid-1962, we saw a 27 percent drop in the market.
Oh, that was in the beginning of the year. No, no, no, I'm talking about from that bottom ... to the top of 1966.
Any chance of even a brief slump?
Yeah, you know, but the market is so powerful and broad-based that any correction will be contained. So that if I talk about corrections, all of a sudden people will be waiting [to buy stocks], but I don't want them to do that. Because if we don't get [one], then you'll be sitting there.
What vulnerabilities do you see?
The fear would be if there is a major turnaround in rates [or] if anything really goes wrong with Japan.... But I'm not worried about Japan; I'm not worried about rates. The earnings will be bad in certain groups of stocks, but not enough to cripple the market.
Are profits at risk - with higher labor costs and cheap imports from Asia?
Yeah, but it is so slow, it is very small and contained. Labor costs will not run away. What about oil [and commodity] prices coming down? I could give you a whole host of other things. People are more productive today.
How should the average investor play this market now?
I would start to look at quality blue-chip names, starting right off with General Electric. Create a portfolio with names that they understand and real quality. And maybe garnish that dish with small- and mid-cap names. Stay with quality.