Despite record high stock prices, the ghosts of Octobers past are scaring hardly anyone this Halloween.
Except for three sectors - health care, technology and utilities - there seem to be few troubled spirits haunting the stock market.
Declining interest rates and healthy third-quarter profits seem to have warded off fears that stock prices would go bump in the night.
"October traditionally is the worry month; bad things always happen," said Cathy Rooney, vice president at Pitcairn Trust Co., Jenkintown, Pa. "But people were really worried about third-quarter earnings reports, and on balance (companies) are beating analysts' estimates."
Ms. Rooney said shadows of doubt formed around several companies including Motorola Inc., but nightmare scenarios were cast aside when third-quarter reports came out. Motorola recorded a 25% gain in earnings from the third quarter last year, to $496 million.
"It seems that almost everyone is doing fine," Ms. Rooney said.
But with the Dow Jones industrial average making record jumps, closing at an all-time high of 4802 Oct. 19 - the eighth anniversary of the market's last major correction - many investors are a bit afraid of the health care, technology and utility sectors.
Ms. Rooney is concerned about what lurks for health stocks, based on congressional wranglings over Medicare. There's potential for health stocks to do well or to do poorly, depending upon how much Congress decides to cut from the programs. On Oct. 19, the House approved a $270 billion cut over seven years for Medicare.
In general, health stocks are good values, but Congress could turn into health stocks' bogeyman if it makes drastic spending cuts for Medicare and Medicaid.
"Chances are, (health stocks) would trade down" if that happens, Ms. Rooney said.
Jack Church Jr., chief investment officer for The Glenmede Trust Co., Philadelphia, said some electric utility companies may be forced to cut dividend payments in order to remain competitive. In the past, he noted, utility companies had been making gradual dividend increases, but earnings have gone sideways in many cases.
Utilities that are paying out 75% of their earnings in dividends are good candidates for dividend cuts, he said. Utilities including Dominion Resources Inc. and Atlantic Energy are paying out more in dividends than they have been earning in the past 12 months, and their stock prices are falling, Mr. Church said.
With the utility industry being deregulated, companies now will have to learn how to compete in the marketplace; some may become ghosts and "just disappear," Mr. Church said. Some may become zombies with flat returns if they don't cut dividend payments, Mr. Church said.
Mr. Church would not say which utility stocks Glenmede owns, but did say it holds 4% in utility stocks; in the Standard & Poor's 500 Stock Index, utility stocks make up about 12% of the index, he said.
Roland Machold, director of the $40 billion New Jersey Division of Investment, Trenton, said the fund's holdings in Intel Corp. were making him a little nervous, but so far, things have turned out well. Currently, the fund has about $1 billion worth of Intel stock, the fund's largest single holding. But despite technology stocks' rocky ride, Intel reported strong third-quarter earnings at $1.02 per share.
"It has been scary because we don't really know what's going to happen," Mr. Machold said. "All technology stocks make us a bit nervous, but they've done well so far."
One factor that is calming most investors' nerves is the downward trend in interest rates, a favorable sign compared to eight years ago.
"Interest rates are going down, and in that environment, we're very far away from October 1987 - because interest rates were going up then," he said.
Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, Philadelphia, said on the basis of earnings, the current stock market is not overvalued; many companies are posting healthy earnings reports for the third quarter, and stock prices are reflecting this.
Speaking at the Financial Writers' Conference in Washington, Mr. Siegel said low interest rates helping to provide a steady economy, and there's little chance of a recession.
"Stocks are not overvalued," Mr. Siegel said. "If we see a slow down, and the (Federal Reserve) does not lower rates, then we could see some trouble in the stock market."