NEW YORK — Stock market strategists have the jitters.
The currency markets are fickle. Inflation and interest rates are restive. The Federal Reserve Board is getting a new chairman. Market volume is suddenly light. And the Reagan Administration's role in the Iran- contra scandal is still under investigation in Congress.
But despite the pervasive nervousness, most of the panic-stricken talk about a 1929-style crash has abated on Wall Street, and investment strategists have turned remarkably bullish about the market's prospects for the rest of 1987.
Six strategists polled by the Los Angeles Times for their views on the second half say the closely watched Dow Jones average of 30 blue chip stocks will charge ahead to at least 2,500 before year-end. The most conservative among them see the market retreating to 2,399 after its charge, while the most ebullient see visions of a 2,700 Dow between now and Dec. 31.
"This bull market ain't easy, but it sure ain't over," said Lawrence M. Wachtel, market analyst with Prudential-Bache Securities, who pinpoints 2,600 as the Dow's high-water mark for the year.
That theme is sounded repeatedly by Wachtel and the five other investment strategists when naming their favorite stocks for the second half.
In the group are the president of a money-management firm and mutual fund, an investment strategist for a mutual fund, a research director for an investment firm and three stock market analysts who track the performance of stocks for brokerages. Several are regular panelists on the televised "Wall Street Week" program. Their combined experience in advising individuals and money-management firms on investment matters and analyzing the stock market exceeds 120 years.
There is no consensus on individual stocks: Only International Business Machines and International Paper appear more than once. But the selections are replete with blue chip companies--a sign of both cautious investing and expectations of a bull market, for rallies often are led by the blue chip stocks.
"The market's going higher, and such blue chips as IBM, General Motors and AT&T have got to participate," said William LeFevre, market strategist for the Hartford, Conn.-based investment firm of Advest. (His Dow forecast for the next six months ranges from 2,622 to 2,730.)
By the same token, "this economic recovery and the bull market have lasted longer than
normal," noted Gene J. Seagle, director of technical research with Gruntal & Co. and one of Wall Street's most optimistic strategists. And in preparation for the day this
long rally finally begins to lose steam, he said, "most individuals would be better served by staying in better quality stocks." (His guess is that the Dow will reach 2,600 or 2,700 by year-end, continue its charge through mid-1988 and then run out of steam the latter part of next year.)
Not just any blue chip stock will do, however. The lists prepared by these six experts are rife with companies that have finally emerged from years of restructuring and with corporations that are expected to fuel the rally with rosy earnings reports.
"I think this market will rally based on earnings . . . and most of the earnings gains will come from manufacturing companies that have restructured," said Robert H. Stovall, president of Stovall/Twenty-First Advisers. Most of the manufacturers on his list fill that bill, as do all five picks by Gail M. Dudack, technical analyst with S. G. Warburg, Rowe & Pitman, Akroyd.
Further fueling the hopes for improved corporate earnings is a chain of events that Wall Street expects to occur after the departure of Fed Chairman Paul A. Volcker.
Gruntal's Seagle explains: "Start with the fact that a presidential election year is coming up, and the party in office historically has done everything it can to keep the economy strong and (to) have a good market. This time, the Administration probably won't have to fight the Fed to do what it wants because with a new chairman, there probably will be more willingness by the (Fed) to go along with the Administration.
"All of this means interest rates probably won't rise to any significant degree and more time will be spent on economic growth than on fighting inflation, which in turn means better earnings and a stronger market."
All bets are off, though, say the experts, if interest rates resume their climb.
"That happens and the market runs into a stone wall," said Monte J. Gordon, an investment strategist with Dreyfus & Co.
Further deterioration of the dollar's value against other currencies is another prospect that alarms market strategists, as does the possibility that news emerging from the Iran-contra hearings will be damning for the Administration.
"Although I think it's unlikely, Gippergate--as I call the Iran scam--could evolve into something as bad as Watergate," Stovall said. "And remember, the stock market lost 45% of its value during Watergate when investors lost faith in the Administration."