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Accumulation in Order

By Arnie Kaufman While risks at present are high, they appear to be worth taking. The latest bounce may prove to be no more than another bear market rally, but the odds seem fairly good that we are in the first stage of a new bull market.

The S&P 500 is up 18% in the little more than two months since the September 21 low. The weakest and briefest of the 10 bull markets of the past 60 years was the 48% gain for the S&P 500 over 26 months from October 1966 to November 1968. The 10 bull markets averaged a 155% gain and 56 months in duration.

The start of a bull market is not a comfortable, feel-good time for investors. Confidence in rallies is low because the bear market that recently ended was by definition an extended series of failed rallies and lower lows.

Upswings typically develop in the midst of a recession when the news is most depressing and when sharply reduced earnings make stocks' price-to-earnings ratios seem high, as is the case now.

The current picture, moreover, includes the possibility of additional terrorism and the likelihood of a long and costly battle to neutralize potential terrorists. The fallout from the Enron meltdown is yet another worry at this time.

Still, S&P chief economist David Wyss believes that the economy, with the help of a large amount of monetary and fiscal stimulus, will return to a normal growth trend in 2002. While an improvement in spending on information technology will be slow to develop, it could arrive at the point when the stimulus is losing its punch and the economy needs a new means of sustaining the growth rate.

Overhead supply of stock for sale is a restraint just now, according to S&P technical analyst Mark Arbeter. The digestive phase could continue until mid-December, but a strong finish to the year is likely, Arbeter believes. Kaufman is editor of Standard & Poor's weekly investing newsletter, The Outlook

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