The U.S. stock market registered only modest gains in 2004 but the Dow Jones Industrial index did reach its highest level in three years. V.O.A.'s Barry Wood reports that because stock markets tend to act as a barometer of overall economic performance, many analysts believe the recovery in stock prices over the past 20 months may suggest good times ahead.

TEXT: For the year as a whole (as of December 22) the Dow Industrials are up only five percent. The NASDAQ composite index comprised mostly of high technology companies did slightly better, up just under ten percent. But that's not the whole story.

It needs to be emphasized that from early 2000 to late 2002 U.S. stocks underwent a brutal, bear market decline. From the top of what is now called the stock market bubble, the NASDAQ declined by two-thirds. Broader market indexes were down 50 percent. Millions of investors saw their savings greatly reduced. And even now many investment portfolios are still smaller than they were in early 2000.

But since March 2003, most U.S. market indexes have been rising. The Dow industrials have risen by 37 percent, leading several analysts to conclude not only that the bear market is over but also that the good times are back. Don Rowe publishes an investment newsletter in Sarasota, Florida. He is telling clients to buy high-tech companies.

/// INSERT ROWE ACT///

"Without a doubt technology is leading this bull market. Small capital and mid-cap stocks along with technology are showing the best gains year to date. I do expect this to continue in 05."

/// INSERT END ACT///

It was, of course, the technology sector that rose fastest and then fell the farthest during the late 90s boom and bust. The sector is a key component of the U.S. stock market because American based companies are dominant players in personal computers and the Internet. Asked what sectors within technology he finds most attractive, Mr. Rowe has a list.

/// INSERT ROWE ACT///

"Internet, wireless, networking, software--are the best sectors to be in. They're showing the best gains."

/// INSERT END ACT///

Bambi Francisco is the Internet editor at CBS Marketwatch, a financial website based in San Francisco. She agrees that for Internet companies 2004 was a very good year. She notes that Google, the web's most popular search engine, went public at midyear and promptly doubled in value. EBay, the Internet auction site, also doubled.

But Ms. Francisco, who spends her time in the Silicon Valley, worries that another bubble could be developing. She sees a red flag in the 300 to 400 percent gains registered by several small Internet companies.

/// INSERT FRANCISCO ACT///

"Yes, when you begin to see a lot of small companies trading and moving up on really no news, just on what is called momentum in the market..you just drive it up higher, for no particular reason for that particular company. When you see those kinds of moves, you begin to think maybe it gets a little frothy."

/// INSERT END ACT///

But Don Rowe in Florida rejects any comparison to the 1999-2000 speculative frenzy. Instead he sees another strong bull market ahead.

/// INSERT ROWE ACT///

"This bull market will be better than the 1995-99 bull market for probably three reasons: Number one, the current market is 33 percent undervalued; number two, the liquidity numbers are absolutely sensational. There's 1.27 trillion dollars in corporate cash-the most cash corporations have ever had; (and) (corporate)earnings are 20 percent better than last year."

/// INSERT END ACT///

But some sectors of the market continue to perform badly. Airlines have been chronic losers with United and US Air in bankruptcy-their shares worthless. Over the past five years, shares in Delta have declined 85 percent and American 67 percent. Airline analyst Ron Kuhlmann in San Francisco says only Southwest Airlines is consistently profitable.

"Southwest was the first to realize that air transportation is indeed a commodity good. And that people are willing to pay to get from A to B, and if they're going to be given something else (like food) that's fine, but they're not willing to pay a premium for it."

Southwest, with a market capitalization (collective value of its shares) bigger than the combined valuation of all its U.S. competitors, is down three percent in 2004. Some analysts believe weaker airlines may be forced out of business in the year ahead. But over the past two years Southwest's share price is up 15 percent. And since 1999 it is up 50 percent.

So what is the stock market telling us? Probably, that the boom times of the late 90s won't come again soon. It may also be suggesting that the brutal bear market and the sub-standard U.S. economic performance of the early years of this decade are also a thing of the past.