SLIM PICKINGS SEEN FOR MARKETS; ASIAN WOES, LOW PROFITS AMONG ANALYSTS' REASONS FOR SLOWDOWN.

Byline: Deborah Adamson Daily News Staff Writer

American equity markets are going to stay anemic for the near future as continuing woes about Asia, concern about corporate earnings for the second half of 1998 and high valuations rein in investor enthusiasm, analysts say.

While many don't believe the bull market is over, investment experts are expecting choppy waters to continue at least until the end of the year in a fashion similar to the volatility the market has experienced this year but with small rallies from time to time.

The markets were mixed Friday, after four days in which stocks overall got hammered. The Dow Jones industrial average closed at 8937.36 on Friday, up 4.38 from Thursday. Standard & Poor's 500 index rose 1.05 to 1140.80 while the technology-heavy Nasdaq composite index came in at 1930.99, down 4.23. The Daily News/Bloomberg Index of local stocks dropped 0.73 to 137.53.

Among the 50 area companies that make up the Daily News/Bloomberg Index 25 stocks declined, 21 advanced and four didn't change Friday. Minimed, K-Swiss and Tekelec led the advances; Countrywide Credit and THQ Inc. led the declines.

This week alone, the Dow has given up 400 points, or 4.3 percent, from its July 17 all-time high; the S&P's 500 declined by 45.95, 3.9 percent; Nasdaq gave up 77.77, 3.9 percent; and Daily News/Bloomberg dropped 3.63, 2.6 percent.

``It was a tough week,'' said Alfred Kugel, senior investment strategist at Stein Roe & Farnham, a mutual fund and asset management company in Chicago. ``We lost about half of what we gained in the previous five weeks.''

He said this week's blood bath resulted from profit-taking by traders who saw an excuse to dump stocks in light of disappointing earnings from several high-profile firms such as Merck, The Walt Disney Co., Hewlett-Packard and Boeing, and warnings of corporate weakness to come.

Also causing damage were Federal Reserve Board Chairman Alan Greenspan's double-sided comments about inflation concerns due to rising wages and unabated problems in Asia continuing to hurt American companies, Kugel said.

``(Greenspan) put a dose of reality on people, and they started to pull back on the market,'' said Don Wellenreiter, president of Defined Risk Asset Management in Newbury Park, a money-management firm.

Wellenreiter sees continued volatility for the near future. He's troubled by the market's breadth narrowing - fewer stocks advancing than those losing ground - and warns especially of the Asian crisis hurting earnings in the next two quarters.

Indonesia, Thailand, Malaysia and a few other Asian nations are saddled with massive debt they are struggling to repay. Japan is in a recession. Their currencies have been devalued, making American goods more expensive to buy. Hence, American sales to that region have dropped greatly, hurting corporate earnings.

Wellenreiter doesn't expect Asia to recover until 2000. He also believes the American stock market will remain lackluster as money managers shift investments from high-priced state-side equities to bargains overseas.

But he stopped short of declaring the bull run to be over.

Indeed, Arnold Kaufman, editor of the S&P Outlook, an investment newsletter in New York, doesn't believe a bear market is upon us.

``I don't think there's any evidence that the bull market is over. It's been showing a remarkable resiliency for 3-1/2 years now,'' he said. ``It should be expected that buying into weakness will emerge again - that's a reasonable bet given the record. . . . The market is innocent until proven guilty.''

For the year, the Dow is up 13 percent; S&P's 500, 17.56 percent; Nasdaq, 23 percent; and Daily News/Bloomberg, 13 percent.

Kugel also argues that companies aren't doing badly overall. Discounting energy-related stocks in S&P's 500, which have been hurt by weak oil prices, two-thirds of the remaining 385 stocks have profit gains of 10 percent or more.

He expects large capitalization stocks, such as blue chips, to continue to do better than mid- to small-cap issues as investors fly to more stable companies.

Indeed, he said, most of the new money recently pouring into mutual funds is going into growth-and-income and index funds that invest in large-cap stocks.

Further supporting blue chips are foreign investors, mainly Europeans, who tend to favor companies they know in American stock markets, Kugel added. Large-cap stocks are helped as well when big companies buy back their own shares with extra cash.

Kugel recommends cherry-picking for one's stocks, favoring companies without much or any Asian exposure and whose earnings remain solid.

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CHART: DOW WEEK

A look at the Dow's drop this week

Associated Press