CLINTON, OPTIMISM AND REALISM IN THE STOCK MARKET

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, January 3, 1993                   TAG: 9212310066
SECTION: BUSINESS                    PAGE: E1   EDITION: METRO   
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
DATELINE: NEW YORK                                LENGTH: Medium
CLINTON, OPTIMISM AND REALISM IN THE STOCK MARKET
Stock market investors in 1993 are likely to pay more attention to the economic performance of the Clinton administration than to the usual stock market advisers, forecasters and indicators.
The reason is an unusually high level of expectations for the president-elect. He is seen increasingly as a person sympathetic to business who seeks change with restraint and who may have the political know-how to bring it about.
An illustration of the widespread attitude was provided last month in investment adviser John Wright's annual pre-Christmas presentation to the New York Society of Security Analysts, a 22-year tradition.
Wright told the analysts that if the rhetoric now being uttered about the need for greater incentives for productive investment isn't simply a mass of words, Clinton can substantially strengthen the nation's economy.
"I believe that an American renaissance is probably now actually in the making," said Wright, an optimist but a realist who likes to deal with facts.
Wright founded Wright Investors Service and built it into an international business data and investment advisory firm. He relies heavily on historical averages and price relationships. He has seen it all in his 80 years, and done much to improve it.
This is his optimistic view of the Clinton administration:
"America certainly has the potential to do much better than it has, and I believe it will," he said. "I do not believe that the `American Century' will end with the start of the 21st century."
Instead, he continued to express his belief that "there are great days ahead for America, even our greatest days."
"American belongs to a great and free people," he said. "They will see to it that President-elect Clinton gets the United States moving again in the right direction."
And this is his realistic view of current stock market levels:
"With the economy on its way to recovery, albeit a relatively slow one, and with interest rates headed lower, you may wonder why I expect some sort of correction in stock prices during the first half of 1993.
"The answer is simple: Valuations are much too high."
He noted that price-earnings multiples, or the number of times earnings at which stocks sell, are well above average. The Standard & Poor's 500 stock index, for example, is now priced around 21 times estimated 1992 earnings.
At that level, he pointed out, it is more than 20 percent higher than its previous five-year average of 17, and two-thirds higher than its 20-year average of 12.
Even in terms of forecast earnings for 1993, the averages still appear high. At its recent peak of 437, he explained, the S&P 500 was priced at 18 times the Wright company's estimate of 1993 earnings.
Evidence of overpricing also can be seen in price-to-equity ratios, he told the analysts. Seldom, he said, has this ratio been above its current level of 2.6 for any extended period. That's reason enough to be cautious, he warned.
Wright offered other evidence to support his thesis that prices already are at levels that almost preclude further advances into 1993 - and that nobody should rule out a correction of prices back nearer to long-term averages.
Having infused his analysis with sufficient doses of realism, Wright again allowed his optimism to surface.
Long-term investors will be able to look back on weakness during 1993 as having been a buying opportunity, he said, "if and when it becomes clear that this [renaissance] will, in fact, be actually realized."
The assignment, he indicated, was Clinton's.

by Bhavesh Jinadra by CNB