A lack of visibility in the economic outlook, particularly with regard to inflation, and a lack of nerve on the part of professional investors are the two main reasons analysts give for the stock market's recent protracted slide.
The reawakening of inflationary expectations has sent a decided chill through a stock market that still vividly remembers how stock prices were early cut in half during the 1973-74 inflationary surge.
Professional money managers, who trade the billions of dollars in stocks held by pension funds, bank trust departments and other institutions, are afraid of once again getting caught with large stock portfolios at a time when rising interest rates make bonds and treasury bills preferable investments.
And there is not much confidence on Wall Street that the Carter administration can do much to stem a new inflationary cycle if it turns out that the recent reaccleration in the price indexes is more than the temporary fallout of the bitter winter weather that hit much of the country.
"The dominant infuence is that the major market participants are risk adverse," according to Eric Miller, chairman of the investment policy committee at Oppenhelmer & Co., a major institutional brokerage firm.
"They're still feeling the anguish and the pain of the last several years, and almost everything involves not sticking their necks out and always tending to fear that the unknown will be the unpleasant unknown," said Miller.
Despite all of the negative psychology, the overwhelming marjority of market analysts believe that the current market drop does not have much further to go. They base this on the continued strength of corporate earnings and other fundamental factors.
Moast put a bottom on the decline of about 850 industrial stocks. Few think that a bear market has points as measured by the Dow Jones average of 30 commenced. But the near concensus at the beginning of the year, that the market had a good chance in 1977 to break through it all time record of 1051 on the Dow, is crumbling.
The widely watched Dow industrials closed yesterday at 916.14, up 0.58 for the day on the New York Stock Ex change. But even this slender gain was misleading because nearly twice as many issues declined as advanced on the Big Board. The market has now dropped in 11 of its last 14 trading sessions to its lowest level in more than 14 months. It is now nearly 90 points below the point at which it began the year.
The overriding concern weighing on the market is the fear of inflation. Industrial wholesale prices have been on the upsurge since last summer and have climbed at an 8 per cent annual rate for the eight months ended in February. New wholesale price figures for March are due to be released by the government Thursday. The expectation is that they will again be in the worrisome double-digit range.
Consumer prices also increased at a double-digit rate in February. And while the sharp hikes in food and fuel that primarily caused the overall jump were clearly weather-related, they have not been easily shrugged off now that warmer weather is here. There is concern that they might have already done their damage in raising the underlying inflation rate a notch or two.
Investors are also worrying that the comprehensive energy program President Carter plans to announce April 20 could further heighten inflation by proposing higher fuel costs as an inducement to conserve. Alternatively, they fear the program will impair the profit outlook for some key industries like automobile production.
At any rate, investors are staying close to the sidelines until the details of the energy program are actually announced.
The Carter administration, in its economic policies, has had "somewhat of a blah effect" on the market, accoridng to Jacques S. Theriot, senior vice president with Smith Barney, Harris Upham & Co.
"If anything, it has been slightly negative. I think there's a feeling they are taking inflation seriously and would very much hope to have a damper effect on it, but it may be beyond the control of the present administration."
"Until investors see that 1978 is going to be a good year with a moderate inflation rate, we will probably see the market locked into a narrow trading range," commented Leon Cooperman, head of the investment policy committee at Goldman, Sachs & Co.
Cooperman said the market may retrace the post-World War II period when the market traded between 193 and 200 on the Dow between the end of 1945 and the end of 1949 despite a doubling in both corporate earnings and dividends. Then investors were afraid that a depression like the one that preceded the war was still a possibility.
"We are basically dealing in a business where the main players are demoralized," Cooperman said. "Brokers are working harder, enjoying it less and getting paid less" due to competitive price-cutting on brokerage commission. "And on the buy side there is the move toward indexation," he noted. (Indexing means matching holdings in a stock portfolio to a popular broad index like the Standard & Poor's 500 rather than trying to pick stocks that will outperform the index. It has been gaining rapidly in popularity.)
"As a result, the major market participants are lacking in excitement. They are accentuating the concerns in the economic outlook because they are unwilling to get caught again as they did in 1973 and 1974," he said.