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Experts: Volatility persists
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February 19, 1999: 12:42 a.m. ET
But strategists disagree on direction of next move, correction or bounce
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NEW YORK (CNNfn) - The Dow Jones industrial average has swung at a more than 500-point range since hitting a record last month. For the Nasdaq Composite, the price swings have been even more violent. It has plunged 250 points since setting a record just 12 sessions ago.
Two market strategists -- Michael Holland, chairman of Holland & Co., and Joseph McAlinden, chief investment officer, Morgan Stanley Dean Witter -- discussed the market's swings Thursday on "Moneyline News Hour with Lou Dobbs." Here are highlights of that interview:
LOU DOBBS, ANCHOR: Let me start here with you, Michael. This market, this volatility -- we've seen, basically, a correction in the Nasdaq. Are we going to see more there, and will the Dow, the Big Board, catch up?
MICHAEL HOLLAND, HOLLAND & CO.: It's interesting, Lou, how we become captives of our most recent experiences. The last couple years, up until this past year, we've had record low volatility. We're now getting back to more normal volatility. In the 1930s, we had volatility that was dramatically larger than this. To answer your question directly, the answer is "yes."
DOBBS: Joe, how about you?
JOSEPH MCALINDEN, MORGAN STANLEY DEAN WITTER: I think the volatility's going to continue and, as the stock market often does, you know, it's a barometer of the economy. It may be presaging volatility we're going to see in the economy over the next four to six quarters.
DOBBS: Now, put that -- explain the economy part of that equation.
MCALINDEN: Well, I think that there are a lot of moving parts here, including the effect of Asia and the world economy, but in the U.S. specifically, the approach of the year 2000 is going to create, I think, distortions in the trajectory of GDP growth, as people and businesses stockpile just in case inventories, whether it's Band-Aids, whiskey or cigarettes, people and purchasing managers will probably start doing that; due, in part, to media hype over the issue in the third and fourth quarters, and then that will be unwound when nothing happens on Jan. 1, 2000, and that's going to create a problem for the Fed.
DOBBS: Let's go to this market. Are we going to see, do you think, a correction, this year, 10 percent or more?
HOLLAND: It's over.
DOBBS: It's done?
HOLLAND: We just had it.
DOBBS: Joe?
MCALINDEN: I don't agree with that. Right now, we've got some powerful upward momentum. It's probably going to carry through and remain narrow, but then peak in the spring, and we're going to get some kind of dip, and that's going to be followed by a major sector rotation in the equity market.
DOBBS: And we will end up with the Dow where?
MCALINDEN: I think the Dow is going to end up probably 9 percent to 10 percent on the year, but, along the way, it could hit -- it could surpass 10,000 comfortably, but then come back and then settle in, up about 9 percent, 10 percent on the year.
DOBBS: Where should we be putting our money?
HOLLAND: I think, Lou -- I wouldn't disagree. We could have corrections anytime. I think we've had a testing of some of the major leaders, which is the technology group, in the past few weeks. We've got some of the biggest hits in the stocks you would expect. The Internet stocks, a number of them, are down 50 percent, so I think that we probably have seen a good portion of this correction in the major groups behind us. I think by the end of the year, we could be up at new highs easily.
DOBBS: Joe?
MCALINDEN: Short term, I think, technology is going to come back with a vengeance, financials, and this kind of strange bedfellows in the short term called utility stocks, but if you're a one- to five-year buyer, I think, the moon shot is energy. It's unloved, but at some point...
DOBBS: Certainly now it is.
MCALINDEN: It is. Some day there's going to be a normal winter, and the world economy will be cooking and energy prices are going to be higher.
DOBBS: And do you want forecast when that normal winter will return as well?
MCALINDEN: Year 2000, probably.
DOBBS: Year 2000 to go with the Y2K issue. We're going to have all sorts of stockpiling as a direct result, Joe, of your appearance here tonight.
In terms of this economy, there is concern some places in the market about the possibility with the economy this strong, that we might even see a Fed rate hike; some concern about corporate earnings, obviously. Give me your read on those two, particularly?
HOLLAND: No chance of a rate hike by the Fed in the next 12 months.
DOBBS: OK.
HOLLAND: I think the next major move could be down. Europe is lowering rates. We've got, I think, a wonderful economy, the best we've seen in our lifetime. It's robust, got wonderful growth, wonderful productivity, and no inflation.
MCALINDEN: Almost agree on the Fed. I think there is a chance, maybe, in the second half of the year they might go up, depends on how strong the economy is. Profits is really the wild card here. I think profits are going to -- profit expectations are going to accelerate; we had a weak year last year in profits. I think this year profit growth is going to surprise on the upside.
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