BY JACK EGAN Stocks are curious creatures these days. Share prices keep surging as if this were the beginning of a new bull market, not one that's in its seventh year.
Investors face a test of their confidence.
At issue is whether corporate profits in the second half of 1997 and beyond can continue to climb fast enough to justify further bets on already sky-high stock prices. If not, some investors might be happier converting part of their stock winnings to fixed-income investments like bonds or cash to hedge against a possible downturn. In a long bull market of record length, investors need to keep asking themselves whether the price they pay for a stock is too high for the earnings potential of the company. This is not the price-earnings ratio investors see every day in the financial pages. That's not surprising, because even though share prices drop in a recession, the earnings component of the ratios also declines.