Y2K Is Bugging the Markets

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Sure, sophisticates love to scoff that fear of the new millennium is much ado about nothing, that the Y2K bug is a molehill, that when the sun rises (if it does) on Year 2000, the world’s financial infrastructure will boot right up. Try telling that to the markets, whose indexes have been shedding points steadily the past two days – mostly on the theory that all the bad news is true. "It’s pessimism," says TIME senior economics reporter Bernard Baumohl. "The big portfolio managers are beginning to play it safe, moving into cash and bonds because they’re just not sure what’s going to happen in the final months of the year."

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For now, there's plenty to worry about if you're looking. The bond markets have begun to sniff inflation — Treasury yields hit a two year high Wednesday – and with Fed meetings in November andDecember, Greenspan watchers are having a hard time believing he won’t raise rates at least once. (This despite the logic of increased liquidity in case of serious millenium-induced money-under-mattress syndrome.) Earnings expectations – and the expectation that good companies beatexpectations — have been ratcheted up so high by the summer’s bull market that nobody seems to be able to keep up. And then there’s the ultimate uncertainty: the possibility, however slight, that December 31 will be the end of the world.

"It’s hanging over everything – the chance that something will happen that nobody was expecting," says Baumohl. "What we’re seeing the past few days is the latest phase of a long, slow correction that will probably continue until spring." Which is not to say that some daring folks won’t be using 400-point slides like this week’s as a bargain-hunting opportunity. Just that they might not be getting much of a bargain. After all, you can’t bring your stock portfolio to Judgment Day.