Bulls Are Starting to Run Wild Again on Wall Street

Some of the best advice routinely given on Wall Street is “Don’t fight the tape”--which means, don’t try to run counter to the major trend.

Although the major trend in financial markets had been down over the last few months, last week’s rally may have been powerful enough to change that. A look at the markets’ performance by sector:

* Bonds: The bellwether 30-year Treasury bond yield ended Friday at 6.88%, down from 7.14% a week earlier and the lowest in eight weeks.

Bond investors took heart not only from U.S. economic data hinting at somewhat slower growth, but also from the continuing dearth of inflation problems. If the data had gone the other way last week, bonds were primed to crash. But sometimes the bulls get lucky.

What’s more, the government is doing its part to make Treasury bonds scarcer: Uncle Sam will pay off $65 billion in debt this quarter, the largest net payoff ever, as tax receipts soar.

And Friday’s agreement between congressional leaders and President Clinton on a plan to balance the budget by 2002, while still a long way from implementation, at least may provide bonds with an ongoing psychological boost.

Still, with the economy booming, many analysts expect the Federal Reserve Board to raise its benchmark short-term rate at least once more, from 5.5% to 5.75%, on May 20.

That may keep shorter-term yields close to where they are--6.24% on a two-year T-note, for example.

But analysts note that if the market buys into the idea of slower growth and a balanced budget, that could be reflected soon in lower long-term yields. The 30-year T-bond yield remains well above its 1997 low of 6.52%, reached on Feb. 14--when the market was convinced growth was ebbing and a budget deal was achievable.

The caveat: If the economy doesn’t slow this summer, bonds’ rally could be short-lived.

* U.S. stocks: The Dow Jones industrials rocketed 332.33 points last week, or 4.9%, to 7,071.20, finishing just below the record high of 7,085.16 set on March 11. So as far as blue-chip stocks are concerned, the spring “correction” is over.

The bigger story last week was the smaller story: Buyers finally began to throw money at beaten-down smaller stocks. The Russell 2,000 index of smaller issues soared 5.4% for the week. The Nasdaq composite surged 7.9%.

Many market analysts remain skeptical about stocks’ abrupt turnaround, if only because the damage has been so severe in recent months, especially among smaller stocks. The Russell remains 4.5% below its record. And many of the most depressed technology issues would have to climb dramatically to reclaim their old highs.

Computer networker Cisco Systems, for example, had a terrific rally last week, rocketing 24% for the week. But at $57.25 Friday, it must surge an additional 32% to reach its record high of $75.75.

Still, even if many smaller stocks don’t retake their old highs, they could bounce nicely here. Before last week, practically every money manager on Wall Street had been talking about the great “value” in the small-stock market. Now they all have a chance to jump on a moving train.

And if individual investors get gutsier, and start shoveling money toward small-stock mutual funds again, the turnaround could continue at lightning speed--which is almost always the way smaller stocks move, whether up or down.