What Correction? Stock Markets Shrug Off Spring Slump, Roar Back

That didn’t hurt. Right?

So, apparently, went the Great Stock Market Decline of early 1997, over and done with just a few weeks after it began.

From a record closing high of 7,085.16 on March 11, the Dow Jones average of 30 industrials, Wall Street’s oldest and most famous indicator of market trends, fell almost 10 percent to 6,391.69 on April 11.

But, propelled by a furious rally in the short time since then, it climbed back above 7,000 in Wednesday’s trading.

Nobody can promise, of course, that stocks won’t abruptly reverse themselves again and head downward once more. Whether the bulls or the bears are in charge at any given time, the market is notoriously ornery and unpredictable.

Off the recent record, however, it’s fair to say that true believers in the mighty bull market of the ‘90s haven’t had to endure many prolonged tests of faith.

The last “correction” to hit the market came last June and early July, creating a big stir for a little while. But by August stocks were climbing again toward new record highs.

This time around, the sell-off was compressed into an even shorter time.

“Usually, after a decline like that of March and April, the recovery period is much longer - a couple or three months minimum,” observed William LeFevre, an analyst at the New York investment firm of Ehrenkrantz King Nussbaum Inc.

With moods changing as fast as they have, you can hear almost as many different interpretations of the whole see-saw swing as there are analysts to try to interpret it.

Many optimists describe it as just a passing shiver, the sort of momentary attack of nerves that occurs at intervals in all bull markets.

To them, Chairman Alan Greenspan of the Federal Reserve simply provided a handy excuse for the sell-off with his winter warnings about “irrational exuberance” and the central bank’s March 25 decision to nudge short-term interest rates higher.

Even if the Fed tightens credit further, the optimists say, investors seem convinced that the economy will keep growing at a healthy clip, benefiting from low inflation, technological leaps forward and widespread gains in productivity.

A large contingent of skeptics, on the other hand, warns that Wall Street remains vulnerable to a variety of potential surprises and disappointments.

“These are prosperous times,” said Henry Kaufman, president of the economic consulting firm Henry Kaufman & Co., in a speech to a banking conference this week. “To assume, however, that a new era of permanently improved economic and financial performance has been attained is rather simplistic.”

In Kaufman’s view, “the high-water mark of financial exuberance has already been reached.”

“I would argue that stocks in most parts of the world are currently very expensive,” said Barton Biggs, global investment strategist at Morgan Stanley & Co.

Still, he acknowledges, “deep in the American psyche, along with motherhood, apple pie and the flag, is the belief that stocks are fabulous investments and that if you hold them long enough you can’t lose.”