Hugh Johnson, a market pro since Lyndon Johnson was president, decided on Thursday to pull some of the $260 million his firm manages for investors out of the stock market.
That decision was not taken lightly. But the market has been so weak recently that even the most seasoned Wall Street investors are beginning to whisper the unthinkable.
“It’s a correction,” Johnson says. “Now the question is, is it going to deteriorate into a bear market?”
Important government figures on employment in March, due out today, are more critical now than ever. A stronger-than-expected job picture might prompt the Federal Reserve to raise interest rates again, dampening the economy.
If that’s so, the 6-1/2-year bull market may be in jeopardy. The trouble, of course, is that no one really knows.
Like many others, Johnson, First Albany Corp.’s chief investment officer, doesn’t think a bear has yet come knocking. But bear markets are like quicksand, often hard to recognize until it’s too late.
Stocks tend to ebb and flow, but since the fall of 1990 a rising Dow Jones industrial average has been pretty much a constant. Despite two presidential elections, an uncertain economy, military operations from Haiti to Bosnia and political scandal, investors have been consistently rewarded.
The current rise took the Dow from about 2,360 to a high of 7,085.16 on March 11. It has since lost 8.6 percent - almost completely erasing its gains for the year. On Thursday, the index closed at 6,477.35, down 39.66 points.
Last March was the last time the market had a case of the jitters, shortly after a February 1996 jobs report was released that showed real strength. The Dow tumbled 171 points.
The problem then was a concern that the Fed would stop cutting interest rates to stimulate the economy. The concern now is that it will raise them again, after doing so last week for the first time in more than two years.
“This one, I think, is more severe than last March,” says Steve Burr, an accountant tending to his portfolio during lunchtime at a Fidelity Investments office in New York.
Burr was buying on the 171-point decline last March, viewing the market as still healthy and the selloff as an opportunity.
This time is different. Burr says he has increased the cash portion of his portfolio and gotten rid of some of the more speculative shares he held in favor of larger, more stable companies.
Worried about a bear market?
“I’m protecting against it,” he says, “but I don’t think it’s going to happen.”
One factor in the market’s favor: There are no troublesome events like tensions in the Persian Gulf driving up oil prices or big imbalances in the economy, like a spate of corporate bankruptcies. Such things can precede, or trigger, bear markets.
“At this point, I don’t see enough of them to say that we’re going to have a severe decline in the market or the economy,” says A. Michael Lipper, president of Lipper Analytical Services, a research firm.
Lipper, though, thinks there could easily be a market decline of 20 percent to 30 percent, which would rank as a moderate bear market. That would take the Dow down as low as 4,960, where it stood in late 1995.
Graphic: Blue chips lose ground