New York Market: Investors look optimistic

THE WORST of the bear market is over, some money managers say. What prompts them to say that? "The underlying argument is that the [market's] two giant props - low inflation and low interest rates - are still there," said J Thomas Madden, chief investment officer at Federated Investors.

The Federal Reserve cut the key US interest rate twice since 29 September. What's more, stocks are benefiting from Japan's attempt to throw off its recession. And they say the market decline that cut 19 per cent off the benchmark S&P 500 Index in six summer weeks discounted a US recession, not just slower economic growth. "If we do go into recession, it will be very shallow and very brief," said Timothy Ghriskey a money manager at Dreyfus.

Based on what these investment managers say, 1998, for all its volatility, is beginning to look like just another average year for the stock market. The S&P 500 is up about 10 per cent so far this year. The average return for the benchmark indicator in the last 20 years is just below 13 per cent.

Still, these investors don't expect a quick return to the pace of the market that pushed the S&P 500 to gains of more than 20 per cent a year in the past three years. "We may have seen the bottom, but it is not up and away from here," said Jeff Erickson, a money manager at Advantus Capital Management.

The S&P 500 gained 1.3 per cent last week, the Dow Jones was little changed, and the Nasdaq Composite was up 4.6 per cent.

Computer-related stocks may gain after companies such as Compaq, Intel and EMC all reported earnings that surpassed forecasts. IBM's third-quarter earnings rose a better than expected 10 per cent.

Investors also are buying banks, but regional US banks, not those heavily exposed to suspect loans and securities overseas. "With the Fed lowering rates, regional banks should have decent earnings," said Edgar Larsen, at AIM Capital Management.

Overall, third-quarter earnings reports support the worst-is-over scenario. Three-quarters of the companies in the S&P 500 that have reported met or surpassed expectations and only 25 per cent did worse.

US bonds fell, rounding out a week of declines, as the turmoil that gripped financial markets in recent months began to abate and investors moved away from the refuge of Treasury securities.