BEAR IN BULL'S CLOTHING; TECH STOCKS DRIVE MARKET WILD, WHILE VALUE STOCKS IN DOLDRUMS.

Byline: Kathy Bergen Associated Press 

Though major stock market indexes are busting their buttons, many investors are unsure whether to laugh or cry.

Those fortunate enough to be aboard the relative handful of high-tech rockets that have been boosting the indexes in recent years continued to beam.

Meanwhile, buy-and-hold investors who diligently diversify their portfolios looked on with envy as their holdings continued to plod along in the shadows.

Indeed, as ebullient as the market appears to have been recently, there has been a hidden, or stealth, bear market for the majority of stocks over the last 19 months.

``Only a few stocks are pulling the weight of the major averages - most stocks have been left behind,'' said Rao Chalasani, chief investment strategist at First Union Securities in Chicago.

The number of declining issues generally has outstripped the number of advancing issues since April 1998, he noted, ``even though the stock market has been making new highs since then.''

The bifurcated nature of the market comes into sharp relief by contrasting the performance of the major indexes against the performance of the average stock in the last 19 months, noted Lance Stonecypher, managing director of equity selection for Ned Davis Research Inc. in Venice, Fla.

From April 1998 through the market close Nov. 18, the Standard & Poor's 500 index climbed 26.5 percent, the computer technology-heavy Nasdaq composite index surged 75.8 percent and the Dow Jones industrial average gained 20.1 percent. Yet despite modest broadening of the market in recent weeks, the Value Line geometric composite of 1,625 stocks, which Davis Research uses as a proxy for the average stock, was down 15.1 percent, he pointed out.

Providing the primary muscle behind the ascent of the major indexes have been the nation's largest companies in terms of market capitalization, or value, with heavy representation, especially this year, from the high-tech arena.

``The `old economy' stocks are not doing well and the `new economy' stocks are hitting new highs,'' said Al Kugel, senior investment strategist at Stein Roe & Farnham in Chicago.

Among the high-tech powerhouses this year have been America Online Inc., Cisco Systems Inc., Nortel Inc., Oracle Corp. and Sun Microsystems Inc., noted Chris Wolfe, market strategist for J.P. Morgan & Co. in New York.

While such firms have made the S&P 500 index look robust, the bulk of the firms that make up the index have been well off their 52-week highs.

As of Nov. 17, 72 percent of the stocks in the index were down at least 10 percent from their highs, Wolfe said. Close to 47 percent were down at least 20 percent and 27 percent were down at least 30 percent.

``Obviously, if you're in stocks that have been out of favor, you're not only in a stealth bear market but a real one,'' said Kugel, of Stein Roe.

And that can sting.

``It bothers me, but there's a sense of uncontrollableness,'' said Corey Bandes, a long-term investor who said his portfolio of equity and bond mutual funds has held steady lately.

``I can't control the market growing by leaps and bounds while my portfolio is not doing so well,'' said the 39-year-old divorce attorney from Chicago.

Still, he plans no changes in his holdings, noting the potential for today's high-priced stocks to tank.

Another investor who has felt the chill of the stealth bear market is Tom Bartkoski, whose diversified portfolio is weighted toward so-called value stocks, or those whose prices are low relative to earnings, assets and sales. Except for a brief rally in the second quarter, these sorts of stocks have taken a back seat to stocks of fast-growing companies in recent years.

Describing his investment approach as ``reasonably steady, conservative and almost Midwestern,'' Bartkoski, 40, of Schaumburg, Ill., said, ``Because of my temperament . . . I probably have not had quite the returns that someone invested in the S&P 500 would have had in the same period.''

Yet Bartkoski, like Bandes, a fellow member of the Chicago-based American Association of Individual Investors, plans to stay the course.

``I feel like over time a lot of small- or mid-cap mutual funds will do better because the investment cycle will move to those,'' said Bartkoski, a project manager for World Business Chicago, an organization that tries to bring foreign firms into the Chicago area.

A number of professional investors with good track records share this view and have tinkered with their investment selections as a result.

``We're of the opinion that as the global economies get better, specifically in the Far East, generally that kind of rising tide benefits all companies regardless of where they sit from a market capitalization standpoint now,'' said John Zielinski, portfolio manager of the Northern Growth Equity Fund.

While that fund benefited from an overweighting last year in some mega-cap stocks such as Microsoft Corp., Intel Corp. and General Electric Co., Zielinski said he has been trimming those holdings a bit and ``moving down the food chain,'' picking up some midsize tech firms such as Altera Corp. and E-Tek Dynamics Inc.

He is still bullish on the titans but says a brightening earnings outlook for smaller firms makes them attractive, too, particularly because many have stock prices that are bargains relative to the bigger players.

Even if the stock market broadens in the near future, the current stealth bear market at least presents myriad opportunities for tax-loss selling.

``There obviously are a lot of stocks and bonds and mutual funds that are underwater for the year, and we do look at that in terms of trying to harvest losses for clients,'' noted Timothy Schlindwein, a Chicago-based investment counselor.

Financial advisers, including Schlindwein, continue to urge investors to stay diversified as protection against inevitable shifts in the market.

Indeed, some observers expect a shift before too long.

``As long as the economy is doing well, this kind of divergence cannot go on too much longer,'' said Chalasani of First Union.

Seeing no economic underpinnings for a full-fledged bear market, he expressed optimism that the bullishness for the big tech stocks will extend further into the market.

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PHOTO Tom Bartkoski's portfolio, weighted toward value issues, has felt the pain of the stealth bear market.

Charles Cherney/Chicago Tribune