“In the past two years, the Nasdaq Composite has gone from 2700 to 5100 and backtracked to 1638, with some extraordinary daily swings along the way,” begins Andrew Bary in this week’s issue of Barron’s.

“By contrast, the Dow Jones Industrial Average has been strictly Dullsville, stuck in a relatively narrow range between 9,500 and 11,500, although, it too, has seen some wild days.”

“For all the bull market’s bluster, however, the stock market’s major measures have fallen since mid-1999. And they’ve averaged only modest gains since the middle of 1998. The Dow, which closed Friday at 10,539, rose an average of 7% a year in the three years that ended in June. The S&P 500, now 1215, fared worse, climbing almost 4% per year, and the Nasdaq, which finished the week at 2084, advanced by less than 5% annually, trailing supposedly boring bonds. Measured by the Lehman Brothers Aggregate Bond index, bonds were up an average of 6.25% in each of the past three years. So much for the illusion of monumental growth — and the sobering reality.”

“The Dow’s subdued performance in the past two years could portend lower volatility for the Nasdaq and for the market’s third horseman, the S&P 500. Muted growth in corporate profits also suggests calmer days ahead — and more restrained swings for former firebrand issues.”

“As most everyone knows, stocks have been caught in a tug-of-war this year between declining interest rates and diminishing corporate profits. Wall Street has taken heart from the Federal Reserve’s aggressive moves to cut short-term rates by 2.75 percentage points, to below 4%, as such actions historically have been a prelude to stronger profits and higher prices for stocks. But Corporate America hasn’t followed the script, with many companies reporting disappointing earnings since the final quarter of last year.”

“Investors had hoped in January, when the Fed first began easing, that profits would start to recover by the second half of this year. But it now seems virtually certain the rebound won’t come until at least the first half of 2002, even though stocks might begin to move up ahead of better news.”

“In the past few weeks, former stalwarts such as EMC, Corning, Merck and Federated Department Stores all have announced profit shortfalls. Outside of a handful of companies such as Microsoft and IBM, members of the technology group have seen their earnings all but collapse.”