Reading the Market
Steven Einhorn should be sitting atop the world. For months Einhorn-the chief investment strategist at Goldman, Sachs & Co.-has said stocks would go higher. Others might harbor doubts. Not Einhorn. He plastered his clients with facts and figures, but his message was simple: The bull market endures.</br></br>And so it has. The market has dropped sharply in the past week, but the decline has been from an all-time high. In general, the metaphor has rarely seemed so apt. The bull has rumbled over anything that might disturb its advance: Irangate, the insider-trading scandal, gyrating oil prices. The first-quarter gain of the Dow Jones industrial average (23.2 percent) was the second best since World War II. Since the summer of 1982, stock values have nearly tripled (see table). The market has made Einhorn look like a genius.</br></br>It makes me feel like a moron. The biggest bull market since World War II begs for meaning beyond the stock statistics. I wish I could supply it. Having purged inflation's excesses, are we launched into a greater prosperity? Or has the market gone mad? It's one or the other-or something in between. Don't look to Wall Street for insight. Even the sober market analyses, like Einhorn's, bristle with arcane ratios. A lot of the rest is, well, gibberish.</br></br>The market's latest guru, Robert Prechter, predicts a 3600 Dow (yesterday's finish: 2252.98). Prechter embraces the Elliott wave. It's mysticism to me. The theory, says Barron's, holds "that the stock market zigzags up in five waves, three up and two corrective moves down. It then is supposed to turn down for three waves, the middle one of which is an upside correction. This pattern . . . is repeated three times, culminating in a major three-wave correction." Got it?</br></br>Of course, lower inflation and interest rates are the basic causes of the stock and bond market rallies. A 30-year Treasury bond issued in 1981 at 15.2 percent and worth $1,000 is now worth more than $1,600 because the market interest rate has fallen to 8.3 percent. Stock prices rise for the same reason. A given stream of profits and dividends justifies a higher price.