and to one degree, you say, “Yes, you’re probably right.” But to the other degree, you look at the earnings. Look at Intel and Microsoft-the numbers are unbelievable. The stalwarts of the industrial age–the big capital goods manufacturers and basic material stocks that brought us to this point are the ones suffering. Their valuations are contracting and their stocks are being corrected. If you look at 1999, I would have to agree that we will probably see some double-digit return, but it’s going to be very volatile getting there. We’re going to see a correction across the board, we’re going to see a snap back. I think the market will go above 10,000, and may very well close the year above 10,000.
DEBORAH FRAZIER: I wanted to just focus a little on the S&P. It has never done better in history as it’s doing right now. The largest 20 stocks, on average, are earning 35 times earnings right now versus the bottom 480. We’re talking about 480 out of 500 only averaging 22 times earnings. Clearly, growth has outperformed value, 42% to 14%. The bottom line is to stick with quality, whether its stocks or bonds. We’re looking at the market to pull back, at some point, this first half of 1999, building the case for a very strong resumption of the bull market in the second half of 1999 and into the year 2000. Actually, I think that it’s going to look a lot more like it looked in the fourth quarter last year as opposed to saying it’s going to go up, down 10% and then take off. I think that you’ll just see a lot more volatility.
BE: Will we see the continuation of interest rate cuts that we witnessed in 1998 or will the Fed try to slow down market activity by increasing rates?
SINGLETON: Greenspan has said that in order to continue the expansion, it may be necessary for the economy to slow down somewhat before proceeding.
HOLLAND: I think that is remote [that there will be a rate hike], as long as the
issues in Brazil are what they are, to the extent that they are 20% or thereabout of exports. I think that [the Fed] will hold. My guess is they’ll maintain a stable policy.
BE: So where are the value buys in this market?
HOLLAND: Well, the values are clearly in small stocks. On a relative basis, they’re very, very attractive now. Historically, they haven’t done well until all stocks have suffered some sort of pain. The only problem is that very rarely do small stocks catch up with the large. Usually, what happens is the large cap stocks go down to meet the small and then the small lead [the market] coming out [of a correction], which is what happened in 1988 and after the bear market in 1990. In 1991,1992 and 1993, small stocks outperformed [large cap stocks].
FRAZIER: We have a focus on companies that are resilient to slow growth, [but] real growth will merit a