STOCK MARKET Investors are wary of sounding too upbeat

Investors remain wary despite increasing signs of an economic recovery.
LOS ANGELES TIMES
With one month left in 2003, many stock investors face a tough decision: Is it smarter to cash in some of this year's hefty returns -- or put more money into the market, betting that the rally will extend well into 2004?
It has been a long time since most people had any equity profits to protect. This calendar year is on track to be the first positive one for Wall Street since 1999.
Most major market indexes are up between 20 percent and 40 percent since Jan. 1. The average U.S. diversified stock fund is up 27.5 percent, according to Morningstar Inc.
But as the gains have mounted, more investors may be focusing on potential threats to their winnings than on the idea that a new bull market may be under way.
Negative questions
Alan Skrainka, chief market strategist at brokerage Edward Jones in St. Louis, says that as he travels around the United States meeting with individual investors, the accent is on the negative in the questions he gets.
Many people, he said, fear that China and India will take away all of America's best jobs. Others worry about the ballooning federal budget deficit.
Investors' reluctance to sound too upbeat, despite the stock market's unequivocally bullish tone this year, reflects the psychological impact of the deep 2000-2002 bear market and the painful comeuppance for those who bought into the "New Economy" talk of the late 1990s, Skrainka and other analysts say.
To sound excited about the economy or stocks today, "You sound like you're naive -- like you haven't learned anything," Skrainka said.
Yet the evidence pointing to a robust economic recovery has become irrefutable in recent weeks, many Wall Street optimists say.
Real growth
Last week the government revised its estimate of real gross domestic product growth in the third quarter to an annualized rate of 8.2 percent -- the fastest pace in nearly 20 years.
What's more, the report showed a strong pickup in business spending, suggesting that more companies are growing confident that the recovery will be sustained into 2004 and perhaps beyond.
More recent economic data also have been stronger than expected. Nine of 12 major economic reports released in the week ended Wednesday beat analysts' expectations, said Robert Podorefsky, interest rate strategist at FleetBoston Financial Corp. in Boston.
Faith in the economic outlook is what underpins the views of market pros who say it's too early to bail out of stocks just nine months into the current rally. A stronger global economy in 2004 should mean another boost to corporate earnings, which already are up sharply this year, they say.
Many analysts have underestimated the pace of the economy and earnings gains this year, and they may be doing the same in their estimates for 2004, optimists contend. If true, that could leave more potential for stock prices to pleasantly surprise investors next year.
"I can't recall since maybe 1982 the gap between economic opinions and economic reality being so wide," Skrainka said.
Many market pros say they don't minimize what could go wrong for stocks. They concede that geopolitical shocks are an ever-present danger, but they also say there's no way to plan for those.
Interest rates
As for interest rates, Federal Reserve officials have continued to stress they're in no hurry to tighten credit, Podorefsky said. "The Fed keeps talking about doing nothing," he said. That is providing support for the economy and the stock market.
If share prices should take a big hit soon, the important question would be whether there's any significant change in the global economy's momentum, Wall Street bulls say. If the answer is no, then any sell-off should be short-lived -- and a good opportunity to buy, they say.