Editor's Note: In early October, Funding Your Future talked to State Street Research and Management Company's* Jim Weiss, senior vice president and deputy chief of the equity group. The Vanguard Group's Joel Dickson, investment analyst in the portfolio review department, and Mike Gardner, senior vice president and portfolio manager of TDRP's FISA. We discussed how today's stock market and economy compare to October 1987, when the market fell 20%. Following are excerpts from that conversation.

Funding Your Future: Stock market watchers see similarities between 1987 and 1997 and fear there will be another sell-off like the one 10 years ago. What's your take on the market situation today?

Weiss: We see three fundamental factors that are quite different from 1987. The first is continuing positive surprises in earnings growth, both on a company and a general level. Back in 1987, earnings were OK, but we weren't getting as consistent a pattern of quarter-by-quarter growth. The second factor is spectacular good inflation news (2.5 to 3% now compared to 5-6% in '87). The third factor is a strong dollar today versus a weak dollar back in 1987. More importantly, I think we have a much stronger Treasury Department than we did back then.

Dickson:   It's true that stock prices in '97 are on the high side, just as they were in '87. But that doesn't necessarily mean prices will fall again. It just means that, compared to historical norms, they're a little high.

Gardner:  The low inflation has kept interest rate low, a critical factor in economic growth.

Interest rates drive bond market returns, the cost of capitol, equity returns, growth - it really all starts there. Interest rates determine how much consumers can borrow to buy goods and services, and how much business can reinvest for future growth.

FYF:  The Federal Reserve raised interest rates in August of '87. Not long there-after, stock prices fell. The Federal Reserve raised rates slightly in March of this year. Can we expect the same reaction before the end of 1997?

Dickson:  The Fed raised interest rates in both years for the same reason: higher-than-expected economic growth, which raised fears of accelerating inflation. As we look back now, it appears the Fed's action 10 years ago may have stifled growth too much. Today the markets believe the Fed has done a better job of allowing the economy to expand at

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