In the year since the stock market fell on its face, takeovers have provided most of the oomph on Wall Street while technology-related stocks have been the biggest bombs.
And all in all, 1988 has not been the terrible year that many market watchers feared it would be: Stock prices generally are up and volatility is down.
"In terms of the averages themselves, it hasn't been that bad a year. We've been grinding out higher highs and higher lows" throughout the year, said Chester Pado, director of technical research for the Los Angeles-based Jefferies & Co. brokerage firm.
"If you were in the right stocks you did really well and if you were in the wrong stocks you didn't," Pado said.
"It's been a weird year," added Michael H. Sherman, chief investment strategist for Shearson Lehman Hutton in New York.
"It was a bear market in terms of market psychology, but the market itself didn't go down," he said. "The reason the market didn't go down is you had enough value created by buyouts and that kind of activity."
Takeovers have been the driving force behind most of the best-performing stock groups this year, boosting the shares of marine transport, textiles and clothing, general merchandise and tobacco companies.
In the tobacco stocks group, the pricey fight for ownership of RJR Nabisco offset the decline in shares of Philip Morris Cos., which were brought down by the company's pending $13.1-billion acquisition of Kraft Inc., said John D. Connolly, chairman of Dean Witter Reynold's investment policy committee.
Among general merchandisers, generally lackluster sales becalmed the stocks of Sears, J. C. Penney and May Department Stores. Overall, however, Campeau Corp.'s acquisition of Federated Department Stores gave the group a lift.
The fifth-best stock group, air transport companies, benefited primarily from lower oil prices and the disappearance of some discount fares.
"Business has been strong, profits have been better and the recent move to cut back on discount fares has helped yields," Connolly said.
And even airlines had their share of stock-boosting activity: United Airlines' parent, UAL Corp., pulled off a restructuring early in the year and financier Carl C. Icahn bought the remaining 23% of Trans World Airlines stock that he didn't already own.
Other top performers include automobile stocks, big "money center" banks, food stocks, securities brokers and specialty retailers, Connolly said.
Technology stocks accounted for four of the five worst-performing groups this year, with semiconductor issues leading the pack.
"The technology groups performing poorly--that really wasn't a surprise," said Arnie Kaufman, editor of the Outlook, a publication of Standard & Poor's. "The high-tech companies generally were reporting below-expectation earnings this year.
"Semiconductor companies were doing well for a while but then demand started to soften," he said. "They moved in line with the computer group, which is one of their main customers."
The precious metals group also fared poorly after an initial spurt right after the October, 1987, crash in the stock market.
"You had this tug-of-war in the market in terms of psychology as to whether we're going into an inflationary period or a deflationary period," Pado said. Gold is a traditional hedge against inflation.
Newspaper stocks, hurt by sluggish demand for advertising and rising newsprint prices, also were among the slumping groups.
While takeovers were prominent in the market this year, they are "far from the whole story," Connolly said.
The stock market has changed greatly since the October '87 debacle, which drove away small and large investors alike.
"It's obviously very different in terms of participation," Pado said. "I think the (individual investor) by and large has exited the market." Last year the small investor still was buying enthusiastically, he said.
"The small investor certainly has bailed out," Sherman said. "He's had as profound an exit as we've ever seen."
Connolly said Dean Witter's business this year is down 35% among both individual investors and institutional investors. There have been some indications recently that institutions are returning to the market, but "there are not signs of better activity among individual investors," he said.
What stocks will do well next year? "We have a generally bearish forecast for the market, so it's not easy to find groups we like," Kaufman said.
Two possible winners are pollution control and drug stocks, he said.
"We think that the pollution control group, which has underperformed this year, should be among the better performers next year," Kaufman said. "The pollution problem is growing and the more mundane services like garbage collection are commanding higher and higher fees and municipalities are converting their own garbage collection services to the private sector."
The drug stock group "has been doing fairly well and should continue to do well," he said. "It a recession-resistant group, there are lots of interesting new products coming to market and the demographics are excellent. People are getting older and using more drugs."
However, the economy's growth has pushed interest rates up, which doesn't look good for Wall Street in general next year, he said. "Unless we get some good bad news on the economy, we think the market is going to go down."
BEST AND WORST GROUPS IN 1988
Pct. Increase Marine Transport 33.0 Textiles and Clothing 32.6 General Merchandise 32.5 Tobacco 31.4 Air Transport 31.8
Pct. Decline Semiconductors 24.5 Communications Equip. 12.6 Computer Software 11.6 Data Processing 10.6 Precious Metals 11.8
Performance measured from Jan.1 To Nov.17.
Source: Dean Witter Reynolds