Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, January 2, 1992 TAG: 9201020013
SECTION: BUSINESS PAGE: 1 EDITION: METRO
SOURCE: BY KATHY M. KRISTOF
DATELINE: LENGTH: Medium
STOCKS THUMBED NOSE AT RECESSION
The lowest interest rates in decades, belief in an imminent economic recovery and unusually heavy year-end investing have fueled one of the strongest and fastest stock market rallies in recent years.The Dow Jones industrial average soared this week to close at an all-time high. The Dow has soared 305 points, or 10.7 percent, from a fourth-quarter low of 2,863.82 on Dec. 10, creating billions of dollars of wealth for millions of investors - all in the face of a grim economy.
"There is absolutely nothing that is ordinary about a move of this magnitude in the stock market," said Hugh Johnson, chief investment strategist with First Albany Corp. in New York. "This is truly remarkable. It defies not only words, it defies gravity."
The rally is happening despite the fact that many individual investors are on the sidelines or are selling their stocks, taking profits out of the market.
Many people are dumbfounded by a stock surge of these proportions and caution that the risks are high. They say that stock prices could retreat as quickly as they've surged, because of the inexplicable quality of the run-up.
But not everything about the rally is inexplicable. The Federal Reserve Board has cut the discount rate - the interest rate offered to banks - to its lowest level since 1964, and investors believe the economy will spring back to life.
"The long-term prospects for the economy are better because of interest rates, and consequently so are the prospects for stocks," said Michael Metz, investment strategist with Oppenheimer & Co. in New York.
As a result, many investors, facing 4 percent and 5 percent rates of return on certificates of deposit, have pulled their funds out of the banks and opted to take their chances with stock mutual funds or individual company shares, said Michael Hines, senior vice president of Fidelity Investments in Boston.
In addition, with rates this low, stocks that pay cash dividends begin to look more attractive because those dividends often can yield better rates of return than the banks, investment experts say.
To some extent, it is investment by default, said Rao Chalasani, chief investment strategist for Kemper Securities in Chicago.
"Low rates are forcing money out of money market accounts, forcing money out of CDs. The stock market is becoming the singular place for investment," he said. "It is not a fool's rally because there is substance behind it. But the substance is something of a default argument. There are very few other places to go."