New York Market: Stocks set for smallest gain in five years

WITH little more than a month left in 1999, the US stock market is on track for its smallest annual gain since 1994. The broadest measure of US stocks, the Wilshire 5,000 Index, is up 16 per cent for the year, and the Standard & Poor's 500 Index, the benchmark for professional investors, has risen 15 per cent.

While both indexes this year are on a pace to provide above-average returns, the gains are a far cry from the past four years, when the Wilshire averaged 26 per cent annually and the S&P 36 per cent.

This year could mark the start of the long anticipated slowdown in the rate of gains for broad US stock measures, so investors will have to alter their outlook accordingly.

"Expectations are too high, but I don't think this is traumatic," said Charles Kadlec, chief investment strategist for J&W Seligman & Co. "Most people know that 25 or 30 per cent a year is not sustainable."

"Returns going forward will more closely match the improvement in earnings, so think in terms of 10 to 12 per cent annual gains in stock prices instead of 30 to 35 percent," Abby Joseph Cohen, chief investment strategist at Goldman Sachs, said.

For the week, the S&P 500 was little changed, falling 0.4 per cent, while the Dow Jones Industrial Average lost 0.1 per cent. The Nasdaq Composite, though, jumped 2.3 per cent, its sixth weekly gain.

Up 57 per cent for the year, The Nasdaq composite is on track for its biggest annual gain ever. However, this is being driven by a select group of companies in internet retailing, fibreoptic and wireless communications, and computer network hardware.

Other stocks aren't faring as well, which explains the Wilshire's relatively poor showing. The average stock on the New York Stock Exchange is down 27 per cent from its high of the past year, while the average Nasdaq stock is down 31 per cent, according to Jeffrey Warantz, an equity strategist at Salomon Smith Barney.

Lagging stocks include Caterpillar, the maker of construction equipment, which dropped 14 per cent last week after a fourth-quarter profits warning.