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Jennifer Westhoven
New York, Sept 2: Some of Wall Street's top analysts are urging investors to put more money into stocks, despite the market's head spinning performance this week.
Market gurus at Goldman Sachs & Co, J.P. Morgan & Co.Inc, Legg Mason Wood Walker, PaineWebber Group Inc and Prudential Securities have all said at these low levels, stocks are cheap.
But at Merrill Lynch, the strategist at the nation's largest brokerage house, warned that stocks are likely to go lower.
The bullish camp seemed to win on Tuesday as the Dow index ended up 288 points, or 3.8 per cent, at 7,827.43. A day earlier, it posted its second-largest fall ever, of 513 points.
Monday's bloodletting was fuelled by fears the economic fallout from financial crises in Russia and Asia would stun the global economy.
Abby Joseph Cohen, one of Wall Street's longest-running bulls said, "We expect little impact (from the developments) on US economic growth, corporate profitability and cash flow, suggesting that values have notably improved inrecent weeks."
"Importantly, we do not expect global recession this year or next," she said in a report.
Going a step further, she said investors should put more money into stocks. She urged that 72 per cent of assets in a balanced portfolio be invested in stocks, up from 65 per cent.
The 5 per cent that she had previously recommended in cash should now be switched into stocks, and investors should cut back investments in commodities to 3 from 5 per cent, Cohen said.
It was the first time Cohen has changed her numbers since October 28, 1997 -- when the Dow rebounded 337 points, just a day after plunging a record 554 points.
Many credited Cohen and a massive stock buyback by International Business Machines Corp for the turnaround.
A few blocks away at J.P. Morgan, stock strategist Doug Cliggott agreed, saying investors should aim more money at stocks, even though there may be more bumps on the road ahead.
Cliggott has been conservative since April 27 when he shifted assets out of stocks. The Dowclosed that session at 8,917.64 and went on to set a record high of 9,337.97 on July 17.
"In a word, valuation," said Cliggott. The Standard & Poor's 500-stock index is now "cheap," he said, based on his outlook for 5 per cent growth in earnings over the next four quarters.
Legg Mason Wood Walker chief market strategist, Richard Cripps gave similar advice to his clients on Tuesday.
Both Cripps and Cliggott advise that 60 per cent of assets be held in stocks, slightly less bullish than Cohen.
Prudential strategist Greg Smith also advised clients to start wading back into the markets, but he made the call during Monday's market plunge.
"We took 5 per cent out of bonds, because we think we've pushed bonds as far as they can go, and put it into equities, because we think we've absorbed most of the damage in this area," he said.
As investors have fled to "safe" investments, the yield on the long bond has fallen to record lows, temporarily sliding below 5.30 per cent on Monday before rising on Tuesdayto 5.35 per cent.
At PaineWebber, chief investment strategist Ed Kerschner said, "absent a US and European recession, this market is cheap," in a note to the firm's customers. "The stock market is approaching excessively undervalued levels, almost the mirror image of the overvalued levels reached in the early autumn of 1987," Kerschner said.
At Merrill Lynch, however, the mood was decidedly less optimistic.
"Now is the time to stay close to our clients, to avoid action borne of emotion or panic, and to counsel deliberation and a long-term perspective in all investment decisions," top executives said in a memo to employees.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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