Tuesday, March 30, 1999

10,000 reflects faith in economy

Market's where we put money

The Cincinnati Enquirer

        10,000 is just a number, stock analysts are saying, but examine the road taken there and it becomes a much larger story.

        The Dow Jones industrial average closed above 10,000 for the first time Monday, up 184.54 for the day. More significant: The Dow is up nearly four times for the decade.

        American households have added trillions in net worth, and businesses have found it easier than ever to raise capi tal, creating an American wealth and economic machine unrivaled on Earth.

        “People are feeling in good shape, because their net worth is increasing. Their assets in the stock market have appreciated very substantially,” said Murray Weidenbaum, an economist at Washington University in St. Louis and former adviser to President Reagan.

        “The American economy is the envy of the world. It's not surprising that the stock market reflects that. We are the best, most consistent economic performer on the globe.”

        More Americans than ever have a stake in the market. In 1998, mutual funds were owned by 44 million of the nation's 101 million households, up from 30.7 million in 1994 and 11.9 million in 1984, according to the Investment Company Institute. Half of all households where the head is age 35 to 64 owned mutual funds in 1998.

        More families own stocks, and stocks are making up a larger share of household net worth, according to the Federal Reserve. The brokerage Goldman Sachs reports that American households added $10 trillion in net worth from the end of 1994 to the middle of last year. “This figure is truly extraordinary — a gain of nearly 50 percent in just 31/2 years, or 11.4 percent per year, and about twice the amount consumers spend in an entire year,” a brokerage report said.

        That goes a long way to explain why, as Asian economies broke down last year and South America teetered, the U.S. economy roared ahead. As U.S. exports fell and manufacturers cut jobs, Americans spent the economy to its second-best year of growth in this decade.

        The wealth has also allowed businesses looking for investment to grow. In the last five years, businesses raised $183 billion in initial stock offerings, according to Securities Data Co. VentureOne Inc. said that last year 1,824 embryonic businesses raised $12.5 billion in venture capital, both records.

        Experts see that as nothing but healthy. “I think it's a wonderful thing that ... there's money to place on ideas,” said Jeremy Seigel, professor of finance at the Wharton School and author of the best-selling Stocks for the Long Run. “That's how innovation really gets developed. That's the type of thing we've got to encourage, and I'm very pleased (the venture capital) market is in fact healthy now.”

        Practically no one expects this kind of run to last. “I do worry in the back of my mind that many young people have never seen a bear market of any magnitude, and might think there are no risks in stock investing,” Mr. Seigel said.

        “I'm not predicting a recession or anything. On the basis of history, you can't expect anything to go up without bumps.”

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