WASHINGTON INVESTING: Stocks Show Investors Are Betting on a Recovery
How is Wall Street coping with the recession? Quite well, thank .you. Brokerage firms are enjoy-,ing record profits. And the prices of many stocks have climbed higher and higherÛÓeven while the unemployment lines have grown longer and longer. Investors are doing fine, too, especially in mutual funds. Stock funds gained an average of 36 percent last year while bond funds rose an average of 26 percent.</br></br>Admittedly, it doesnÛªt seem to make much sense. How can the financial markets be booming at a time when there is so much joblessness and so much distress in the business community? What is it about the behavior of the markets that turns bad news into good news?	;</br></br>Perhaps the simplest explanation, and it only scratches the surface, is that investment cycles rarely match the business cycles that bring on recessions. Indeed, the financial markets often serve as forecasting mechanisms, reflecting not what is happening today, but what investors believe will happen six months or a year from now.</br></br>Thus fir. the message of the markets is that investors are betting on a recovery that will boost the profits and the stock prices of many companies caught in the current economic slowdown.</br></br>As for Wall StreetÛªs current prosperity, it is worth remembering that the securities business already has had its recessionÛÓone that essentially began with the market crash in Oct/ober 1987 and lasted for three years.