Experts Build The Case For a Fabulous Stock Market, With a Dow of 9000, and It All Adds Up ...

Dow 9000: So Good, or Too Good to Be True?

Think Dow 9000 ... and up.

Momentum occupies the driver's seat.

Many analysts say that US stock prices, despite some hesitation last week, will soon roar past the 9000 level on the Dow Jones Industrial Average and eye the next milestone: Dow 10000.

Propelling stocks upward is a happy combination of low interest rates, negligible inflation, and high employment - which gives workers the take-home pay needed to invest.

"Economic conditions are excellent, and the [stock] market pace is incredible," says Arnold Kaufman, editor of The Outlook, a newsletter published by Standard & Poor's Corp. in New York.

"At this point, the market is well ahead of the pace of the past three years," he says. "The market is up 12 percent this year. Last year at this time, it was up 6 percent," after similar gains in early 1996 and '95.

Mr. Kaufman sees the current advance continuing right through the spring. Although there could be a modest correction in summer, more gains will come in the fall, he predicts.

The bull-market euphoria is not unanimous. One especially worrisome factor, for example, would be any revival of inflation, which could send interest rates higher and prompt a market sell-off.

But for now at least, the bull's strengths look formidable:

Momentum. "Don't fight the tape," says one piece of Wall Street wisdom that dates back to ticker-tape days. It means don't fight broad market direction, even if you think it's wrong.

"Market momentum is bigger than anything else right now," including a modestly growing economy and decent growth in corporate earnings, says Michael Flament, who tracks the market at Wright Investors' Service in Bridgeport, Conn.

Tame inflation. The price of a gallon of gasoline has plummeted to the lowest levels ever, when adjusted for inflation. This is a powerful economic stimulant, the equivalent of a $10 billion tax cut, says Cary Leahey, chief US economist at High Frequency Economics in Valhalla, N.Y.

Labor costs are rising, but gains in worker productivity have so far kept wages from fueling inflation.

And Asia's economic slowdown will keep a lid on prices, as countries there send over a flood of cheap imports to boost their economies.

A "new era" economy. Some analysts say computer technology and globalization of business have created a new landscape. Where past booms have ended as inflation rekindled, this cycle may have unusual staying power.

"This time it is different," says Ralph Acampora, chief market technician at Prudential Securities in New York. He sees the Dow hitting 10000 this year (see Dow, Page B8).

Many US companies these days plow money not into new plants but into cutting manufacturing costs and raising productivity.

Money. The bull market has been sustained by massive inflows into stock mutual funds, particularly through workers' 401(k) retirement plans.

The assumption is that shareholders would not bail out of their funds in a significant downturn. That's because they're investing for the long term, often with automatic monthly investments. In recent market dips, investors have largely stayed put.

But the 401(k) era has yet to be tested by a major downturn, such as a 20 percent dive. James Stack, who publishes the InvesTech newsletter in Whitefish, Mont., recalls the bond-market meltdown of 1994-95. Holders of bond mutual funds waited about six months and then began a massive evacuation.

"The market has been cruising so fast [recently] that it's sort of sailed over the potholes," says Mr. Flament.

Most investment-house strategists see the good times continuing.

Abby Joseph Cohen of Goldman, Sachs targets the Dow at 9300, at least, this year.

"The Dow will reach 9500 this year," says Rao Chalasani, chief market strategist at Everen Securities in Chicago. "There's nothing out there that suggests a major downturn."

"There is just nowhere else to go right now" but stocks, says Hildegard Zagorski of Prudential Securities in New York. She sees the Dow swinging at least to 9300.

Bottom line: Thanks to momentum, the path appears to be onward and upward for stocks - to 9000 and beyond. But look out for those pesky potholes.

Bullish Barometers

* "The economy, stupid." Rates are low. Consumers are upbeat. The outlook is strong.

* Momentum. It's the story of the 1990s, as bulls keep overrunning bears.

* Money, money money. It keeps flowing into stocks from retirement plans. It's long-term money, a stabilizing force for markets.

* Working smarter. Gains in productivity, driven by technology, offset inflationary pressure.

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