Just How High Is Up?

Just about every day, the U.S. stock market climbs to new highs. Big stocks and small, broad indexes and narrow are inching up into unexplored territory.

Ain't it awful?

If you listen to the prattle on Wall Street, it sure seems that way. The organs of conventional wisdom, from newsletters to analyst reports to the chart books of the technically inclined, are abuzz with the word that the market is as unsteady as a tightrope walker on Quaaludes. Look out below, they say.

It's a picture as believable as it is wrong. Never forget that the stock market invariably abides by what Dwight D. Eisenhower said about war: It will astonish you. And as the current phase of the bull market enters its fourth year, the biggest surprise is that it's still a long way from over.

The year ahead should astound the gathering army of bears. Yes, the market is at a record. But compared with overseas bourses, the U.S. is actually the epitome of moderation (chart). And the U.S. economy, compared with other industrial nations, is no underachiever. In the year ahead, the byword in the economy will be "productivity." Increased efficiency will boost profits faster in the U.S. than overseas--thus providing the underpinnings for a continuation of the bull market.

HANGING IN THERE. So if you're thinking about pulling out of the market and taking profits, think again. And that's where BUSINESS WEEK's 1994 investment outlook can come in handy. This special double issue is a road map of the global landscape--where to go, how to get there, and what to avoid.

U.S. stocks generally, and small caps in particular, will remain an alluring destination in the year ahead (pages 80 and 84). To be sure, pitfalls abound, such as the everheated market for initial public offerings. But with inflation in check and with the economy staging a slow but steady recovery, some of the best opportunities in the global arena are likely to be right here in the U.S. On page 68, we've set forth in detail the generally encouraging economic picture. A complete rundown of corporate earnings, with 1994 profit estimates for some 900 companies, begins on page 143.

Mutual funds are, of course, the best way to take a plunge if you've been sitting on a hoard of cash. The trick is not to get swept up by the fad of the moment. Precious-metals mutual funds could easily turn in 1994 returns as horrible as 1993's were terrific. Funds are the best way to test the waters in such tricky fields as junk bonds and overseas stocks, where professional management is crucial.

Bonds and bond funds are not likely to have as stellar a year in 1994 as in 1993. And occasional inflation scares will send bond prices dropping temporarily. Here again, investor jitters are cause for solace--and should provide buying opportunities. Municipal bonds remain among the most attractive fixed-income opportunities, as income-tax rates climb.

Overseas markets, too, should not be ignored, despite their scalding performance. Some of the hottest markets are in such regions as Latin America and Asia, and they are likely to remain alluring in the year ahead. Nevertheless, investors in the U.S. remain slow to embrace global investing, which is one of the best reasons to look abroad. We examine the world investment spectrum, from Chinese bicycles to Mexican telephone companies, in the section beginning on page 96.

MATTRESS STUFFING. Gold, always a fickle metal, is beginning a slow but steady rise-perhaps above $400 an ounce again. Real estate, too, is on the comeback trail. At a time when financial assets are on the front burner, commodity funds are worth a close look, at least by those investors who see a bear market lurking.

If all these choices seem dizzying, start out by doing what the pros do: Draw up an asset-allocation plan. We tell you how. When it comes to making stock picks, check out merger plays and the Inside Wall Street section. Take a tip from one of the experts we've buttonholed to invest a theoretical $100,000. If you've struck it rich or if you've simply been hoarding your greenbacks in a mattress or money-market fund, their insights should prove valuable.

As always, our compendium of the best and worst investments of the past year can serve as a guide to the latest fads and dogs on Wall Street. This year, we've gone one step further and have included a discussion of where not to invest. As any successful investor can tell you, not losing money is at least as important as making money.

      Country       Stock market performance*
                  In local currencies       In U.S. dollars
      HONG KONG        84.4%                     84.8%
      SWITZERLAND      41.3                      41.9
      GERMANY          40.5                      33.9
      JAPAN            13.1                      29.6
      ITALY            41.4                      24.2
      SPAIN            50.8                      23.9
      FRANCE           22.5                      16.3
      BRITAIN          17.6                      16.0
      CANADA           19.3                      14.0
      U.S.              6.8                       6.8
      INDEX            17.0%                     20.0%
      *Jan. 1 through Dec. 13, 1993