Flat 1994 Returned Stock Market To Normality

Welcome to normality in the stock market. The flat performance of major stock indexes in 1994 was a major disappointment to many, but the results merely had the effect of bringing equity returns back into line with historic norms.

After a 26 percent gain in 1992, a 7 percent rise in 1993 and a 1.5 percent decline last year, the three-year average for the Standard & Poor’s 500 is 10.5 percent.

That’s about as good as the S&P index does on an annual basis over the long term.

Indeed, Rao Chalasani, chief market strategist for Kemper Securities, expects about that result - 10 to 11 percent - in 1995, and he’s recommending that investors get fully onto the stock bandwagon to enjoy the ride.

Does that mean a stock market boom in 1995?

Hardly. But it means stocks are likely to do better than cash and bonds, which were hard hit last year by Federal Reserve Bank actions that increased interest rates.

Chalasani said that while corporate earnings may well peak in 1995, stock values, in terms of price/earnings ratios, are more attractive than they were a year ago. He’s particularly bullish on technology growth stocks, which, he believes, entered a two-year bullish phase last summer.

Normality probably won’t mean stability in 1995, however. Stock market volatility picked up considerably in 1994 after a placid 1993.

A new Republican-controlled Congress and hot debates over tax cuts will keep the pot boiling.