After the Sizzle, Whither Stocks?: More Experts Expect a Decline Because of Takeover Slowdown
Folklore has it that the stock market likes to worry. The old saying on Wall Street, after all, is that the market will ÛÏclimb a wall of worry.Û</br></br>But logic would seem to indicate that at some point the stock market will take some of its problems seriously. And thatÛªs when equity prices will stop climbing and start declining.</br></br>That point may soon be reached, a lot of experts on Wall Street are now saying, thanks to the chaotic situation in the junk bond market recently, uncertainty over whatÛªs happening in the economy and, maybe most important, the sharp slowdown in the number of corporate takeovers.</br></br>ÛÏA lot of the sizzle is gone,Û says Hugh Johnson, chief investment officer of First Albany Corp. in explaining why the stock market has declined sharply after venturingÛÓreluctantly, it now seemsÛÓinto record territory early this month. "Because of the problems in the junk bond market, takeover activity has been reduced. [And] takeover activity has been the principal reason the market has done so well in 1988 and 1989."</br></br>Johnson cites Federal Reserve figures that show corporations bought stocks at a $180 billion annual rate at the beginning of this year, at the same time many othersÛÓespecially individuals, foreigners and life insurance companiesÛÓwere big sellers of stocks. And a lot of the corporate stock purchases, Johnson concludes, came as the result of takeovers.