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Newsmagazines' Cover Stories Bear Watching

March 21, 2001|JOSH FRIEDMAN | TIMES STAFF WRITER

Stop the presses: The bear market might be over.

Or not.

All three major U.S. news magazines feature the ravaged stock market and the faltering economy on their covers this week. And that means the so-called magazine-cover indicator--which postulates that the worst is probably over for Wall Street once the mainstream media discovers a bear market--may be coming into play.

Screams Newsweek: "The Economy--How Scared Should You Be? The Market's Wild. Confidence Is Shaky. What You Can Do Now."

U.S. News & World Report, whose cover depicts a growling bear, asks: "Bear Trap: Will Tech Stocks Sink the Rest of the Market--and the Economy?"

Time has the most optimistic take: "Looking Beyond the Bear: Yes, It's Scary Out There, but a Recession Isn't a Sure Thing. Here's Why." Its cover also features a growling bear--but this one, sporting business attire and carrying a cell phone, borders on cute.

Analysts say the covers are encouraging as a "contrary" signal--but far from conclusive. Contrary indicators, which look at such things as investor sentiment surveys and mutual fund redemptions, can predict market turnarounds on the theory that when the bad news is already out there among the masses, it can't get much worse.

"We're finally starting to see the gloom," said James Stack, president of Whitefish, Mont.-based InvesTech Research. "But the press is still posing the question about a recession without reaching the conclusion."

U.S. News Managing Editor Brian Kelly said he has never heard of the magazine-cover indicator.

"It makes sense," he said with a chuckle. "Like the notion that when your barber is buying stocks it's time to sell. I'm perfectly willing to believe that when a bunch of magazine editors in a room all agree on something, it must be so obvious that it's months old."

But he said news judgment dictated that the stock market be this week's cover story.

"By definition, the broad market crossed into bear territory last week. One of the things we do is to mark moments, and the bear market is a big moment."

Time Managing Editor Jim Kelly said he hopes the magazine indicator is on the money.

"There's also a Time cover curse," he noted. "We had Amazon.com's CEO, Jeff Bezos, as Man of the Year in December 1999 and that stock proceeded to drop like a rock. As an investor, I sure hope Jim Stack is right."

Stack said the magazine indicator has generally worked, calling the market bottoms of 1969, 1974 and 1990 within a month or two. It may work, he said, because stubborn investors may throw in the towel when all they read in the media is that they could lose an additional 50% or so. That can signal the "capitulation" that many analysts look for as evidence that selling finally has been exhausted.

But in 1981, Stack said, the grim headlines came about nine months before stocks bottomed, as high interest rates prolonged the pain.

One of the most famous bearish magazine covers was Business Week's "The Death of Equities," published in August 1979. The news was premature: The Standard & Poor's 500 index gained a healthy 17% in the next 12 months.

Stack said he would expect definitive recession headlines this time around if the government's consumer confidence statistics due out March 27 look weak. "We may be close to the end, but clear evidence of a recession could take the Nasdaq down to new lows," he said. "Then the conclusive headlines would come as the market bottoms out."

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