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

DATE: SUNDAY, January 2, 1994                   TAG: 9312290254
SECTION: BUSINESS                    PAGE: E-1   EDITION: METRO 
SOURCE: STEVE SAKSON ASSOCIATED PRESS
DATELINE: NEW YORK                                LENGTH: Medium

SOME REASONS TO BELIEVE IN `94

As the 1993 trading year came to a close, there's a good deal of optimism around Wall Street that the growing economy, absent signs of inflation, can keep stocks rising into 1994.

Although the market has been anticipating some kind of downward correction for months, a handful of stock watchers said they don't expect it to be deep or prolonged.

Their predictions are despite expectations that the Federal Reserve will increase interest rates as a preemptive strike against inflation.

Higher rates, along with higher taxes in the Clinton budget plan and new costs of health care reform, could cut economic growth and corporate profits, but not enough to cause a long-term decline in stocks, they said.

"It may be time for a correction. It's not time for a bear market," said Hugh Johnson, chief investment officer for First Albany Corp.

"We've gone a very long time in this market cycle without a correction, but there are a lot of things that tell me the bull market is still in gear here," added Mark Spellman, portfolio strategist for C.J. Lawrence in New York.

Part of the reason for Spellman's optimism is that the post-recession rise in stocks has been moderate, compared with other economic cycles.

Stocks, as measured by the Standard & Poor's 500, usually go up about 78 percent in the 30 months after a recession low, Spellman said. This time, the market has grown 51 percent over 38 months, he said.

"So the magnitude of the [stock] recovery is lower, but that fits right along with the economic recovery," he said.

James Sulloway, director of research at Argus Research Corp. said that if oil prices continue to decline, that will keep inflation down and boost income,

pushing back the timing of a Federal Reserve Board tightening. Corporate profits are up due largely to job cutting and other productivity-increasing efforts. As revenues increase with the growing economy, profits in these more-productive companies will grow even faster than before, said Carmine Gregoli, U.S. portfolio strategist with Nomura Securities International.

All expect that any rise in interest rates - be it inspired by the Fed or the bond market - will slow the economy somewhat, but not enough to hurt corporate profits and stocks significantly.

Bernadette Murphy, technical analyst with M. Kimelman & Co., noted that Fed Chairman Alan Greenspan is under severe political pressure on several fronts. Some in Congress are trying to force the central bank to open up its decisions to the public. Others are trying to trim its regulatory powers over banks and President Clinton has publicly called on the Fed to keep hands off interest rates.

This political pressure will have an effect, Murphy said. "If there is indeed a raise in rates, it might be later than people are thinking," she said.

One concern of the analysts is a recent leveling off of new investment in domestic mutual funds - the usual place where green investors put their money. One potential trigger for a correction next year could come near April 15, said Spellman.

"If people need the money to pay their taxes, that's going to be a negative for the market because it is really relying on that liquidity," he said.

by CNB