For Wall Street, It's Just Too Good to Be True

By Frank Pellegrini Thursday, May 27, 1999

Boom! The U.S. economy is still sizzling, growing at 4.1 percent annually in the first three months of the year, with inflation still fizzling, by one measure, at 1.1 percent. Boom! Corporate profits and housing starts are both headed up again, and the all-important drunken-sailor index -- consumer spending, which accounts for two-thirds of U.S. economic activity -- rose at an annual rate of 6.8 percent, the highest in 11 years. Bust! The Dow drops 267 points, taking plenty of Nasdaq e-stocks with it, and Wall Street is pocked with potholes once again. What's going on?

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"People see 4.1 percent growth and they start thinking about inflation again, no matter how low it seems to be now," says TIME Wall Street columnist Daniel Kadlec. "And after yesterday's rally, there's a mood that this may be the last chance to get out." But that doesn't fully explain the run on the big Dow industrials, which have lately been favorites in times of trouble. Kadlec thinks some of that can be blamed on the holiday. "There's often a lightening of positions before a long weekend," he says, "so traders can go to their barbecues with a clear head." But that's no guarantee this bear won't hang around well into the summer -- on Wall Street, the head that matters most is Alan Greenspan's.