Stocks soared to new highs as Wall Street threw a party to celebrate the bull market's sixth birthday but the debate is still raging about how much longer the good times will last.
It was another week to remember, as the Dow Jones industrial average closed above 6,000 points Monday for the first time. The world's best known stock market index has been climbing steadily since Oct. 11, 1990, when the Dow was only at 2,365 points.
On Friday, the Dow extended its rally, gaining 35.03 points to close at 6,094.23 -- its fourth record close of the week. For the week, it was up 124.85 points.
The storming bull market was given an extra lift this week as some of the nation's biggest companies reported surprisingly strong earnings for the latest quarter, including General Motors Corp., Ford Motor Co., Sears Roebuck & Co., Compaq Computer Corp. and Eastman Kodak.
As the Dow index romanced the 6,000 level, some experts warned anew that investors who are driving the market to dizzying heights could be in for a nasty surprise.
What is behind the rally, they say, is a new breed of individual investors who are displaying a type of boldness never seen before.
The Baby Boomers are socking away billions of dollars into stock mutual funds for their retirement years after realizing that, unlike their parents, they cannot use accumulated years of real estate profits to build up their nest eggs.
The Boomers are also not putting much trust in the Social Security system's ability to cover their retirement needs.
Studies show that by the time the Boomers retire, only two people will be working to support every retired person, compared with the current 3.3 workers, which is down from an eyepopping 40 workers when the system started paying out benefits in 1940.
As a result, the people who are starting to turn 50 are putting a larger percentage of their salaries into pension funds such as 401(k) plans and relying more on financial markets to provide for their golden years.
The Investment Company Institute, a Washington-based mutual fund trade group, estimated that stock funds have taken in an estimated $177.6 billion so far this year, compared with $128.2 billion for all of 1995.
Some Wall Streeters believe
that the popularity of mutual funds makes the market more vulnerable to a shakeout.
"The mutual funds make money only when stocks go in the direction of their investments," and by definition they can only make money when the stock market moves upward, said John Geraghty at North American Equity Services, a consulting firm.
"Unless the fund managers are extremely adept at using risk management tools such as option writings and put buying or Standard & Poor's hedging, then there is a vulnerability for the stock market," he said.
How smart is the new breed of investors?
A third of all mutual fund investors believe stocks will continue to make headway over the next six months while less than a quarter predict the market will suffer a serious plunge in any of the next 10 years, according to a survey by Liberty Financial Cos., which has 60 mutual funds with more than $26 billion in assets.
Thirty-two percent of mutual fund investors believe stocks will rise during the next six months, 50 percent believe the market will remain the same and only 15 percent predict stocks will fall, according to the survey of 1,014 investors who own mutual funds.
Forty-one percent think the market will not suffer a drop of more than 10 percent in total returns in any of the next 10 years. Only 18 percent think stocks could drop more than 20 percent any of those years and just 5 percent believe the market may fall more than 30 percent, Liberty said.
But if the market suffered a big drop of 20 percent or more, two-thirds to 85 percent of investors said they would hold their funds, while some would add to their positions.
"The method of investing has changed and today's generation is seizing control of its own future, and they are more likely than their parents to use mutual funds for their retirement," said Porter Morgan, investment strategist for Boston-based Liberty.
"The old generation was a child of the Depression and the people tended to be more conservative and the need to invest was much less, and when they came of age, they looked to their employers and the federal government to provide for retirement, he said. "But today, you really can't do that."
Morgan said that now individual investors are better informed about stocks and mutual funds and are less likely to panic in the face of a sharp market correction.
"The investors are much more focused long-term and they understand that stocks go up and down and they are not terribly concerned about any downturn," he said.
The market's quick recovery from its Oct. 19, 1987, crash when the Dow shed a whopping 508.00 points, or 22.61 percent, helped reassure investors about the buoyancy of stocks, Morgan said.
On Friday, the Standard & Poor's index of 500 stocks rose 3.83 points to 710.82 and for the week, it was up 10.16 points.
The New York Stock Exchange Composite index rose 1.91 to 378.32, and it was up 5.43 for the week. The American Stock Exchange index rose 1.64 to 579.03, off 1.38 from last Friday's close.
The Nasdaq Composite index was up 0.52 at 1,242.48. For the week, it was down 5.77.