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Wall Street's Top Three Things That Could Go Wrong This Fall

September 06, 1993|TOM PETRUNO

When Wall Streeters ask "what could go wrong?" in financial markets this fall, these three worries create the highest anxiety.

* Too many new stock issues. Wall Street has already raised a whopping $24.9 billion this year for 414 young companies, via initial public stock offerings (IPOs). And as the bull market has powered higher over the past two months, the number of companies clamoring to go public has mushroomed.

As Wall Street gets back to work this week, it will face a huge calendar of new stock issues. Securities Data Co., which tracks stock offerings, says 136 companies hope to raise $6.1 billion via IPOs in September. On top of that, about 100 established firms plan to raise $4.2 billion through secondary stock offerings.

If investors balk at many of these stock issues, it could signal that the market has at least temporarily run out of gas.

* A weak junk-bond market. Owners of high-yield corporate junk bonds may have noticed that junk yields haven't kept pace with the fall in other bond yields since July. "Junk has noticeably under-performed equities and higher quality bonds over the last month," says John Lonski, Moody's Investors Service economist.

What's wrong? In part, the market may be worried about heavy new issuance of junk bonds expected in September. But Lonski also notes that weakness in junk bonds often is an early-warning sign that investors see the economy sliding, because shaky junk companies would be the first victims of economic trouble.

* A rise in short-term interest rates. The conventional wisdom is that short rates can't rise unless the Federal Reserve says so. And with the latest anemic economic reports, the Fed has no reason to tighten credit, most experts agree.

But Stephen Slifer, economist at Lehman Bros. in New York, believes that "somewhere along the line, the market is going to find out that the economy isn't quite as weak as believed." The great fear is that when investors en masse decide that short rates are poised to rise, it will become a self-fulfilling prophecy--producing a stunning spike upward that will shock Wall Street.

What's especially worrisome is that so many investors who own shorter-term (one- to five-year) bonds believe their investments are safe--which, of course, they wouldn't be if short rates zoomed.

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