Is the Bull Stumbling? - Views on News from Equitymaster

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Is the Bull Stumbling?

Jun 17, 1999

The US market has had a great run. Based on the economic prosperity of the longest economic expansion in recent history, the Dow Jones Index has appreciated over 300% in 5 years. In the 1980's the Japanese stock market accounted for 50% of the global value of all stocks. Today, that pride of place belongs to USA. But could this be the turning point? The Japanese economy is showing signs of life while the US economy is about to be forced into a slowdown with an increase in interest rates. Many analysts have often said that the Dow Jones should be about 40% lower than today's levels. But they have said that before. And have been wrong.

But could those Dow beaters be correct today? Japan's economy is showing signs of recovery and Germany may be just a few months away from an official recovery. Also, if you were a Japanese investor looking at the Dow on a yen-basis, you would probably begin to sell the US stocks and buy the upwardly mobile Japan stocks. On previous weaknesses the Dow may have been a buying opportunity, but with other large economies recovering today,a weakness in the Dow could be the first signs of cracking up and an opportunity to get into the recovering economies in Japan and Europe.

The Indian Bull meanwhile has yet to establish a clear direction. Still less than two months old and being propped by foreign buying, the market has yet to show its ability to withstand foreign selling. The good news is that the domestic investors are getting back in. But will they be able to absorb all the foreign selling if India and Pakistan don't resolve the Kargil issue? If you view the Dow Jones in Indian Rupees and compare it to the BSE-30 Index, you would still be selling India and buying the US stock market. Maybe there is hope for the Dow: the Indians will buy and absorb all the Japanese selling!

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