Y2K pessimists are approaching their moment of truth. In seven weeks the world will, or will not, run into more trouble than most people think. Investors will, or will not, suffer last-minute jitters as the millennium draws near.
Yes, yes, I know—it\'s not yet the millennium, from a technical point of view. As a stern band of readers likes to remind me, only morons believe the millennium falls on Jan. 1. The 1,000-year span actually ends on the year\'s last day, Dec. 31, 2000.

Well, that may be their millennium, but it\'s not mine. I\'m partying now. A more interesting question than calendar dates is whether the stock and bond markets will be partying too. Has the Y2K selling already happened (as I believe) or will it erupt in the final days? If there\'s the usual year-end rally—and last Friday looked good—will we wake up with a hangover?

When you read this, the Federal Reserve will probably have made its latest decision about interest rates (its open-market committee meets on Tuesday, Nov. 16). Either result—rates up or rates flat—should be good for stocks, says economist Irwin Kellner of Hofstra University in Hempstead, N.Y. Investors will feel more secure for the next few months. The markets don\'t expect the Fed to raise rates in December, on Y2K eve, or in early 2000, when business conditions might be distorted by the millennial bump.

Rate hike: After that, investor concern about interest-rate increases may resume. The Fed wants the economy to slow, to ward off the inflation that could arise from tight labor markets and global growth. You\'re seeing some cooling already in housing and auto sales, but perhaps not enough. "We\'re thinking one or two modest rate hikes, over six to nine months," says economist Allen Sinai, president of Primark Decision Economics in New York.

Even so, hardly anyone mentions the R word. A recession could always arise from an unexpected shock, but none of the conventional signals are flashing red. "By cooling things down, the rate hikes will preserve the expansion," Sinai says. "It\'s still a great equity bull market. It just won\'t rise as much as it did in the past."

Bond-fund managers have been shouting and waving their hands, trying to attract your eye. "Last year\'s Russian crisis, plus the Y2K effect, drove money into U.S. Treasury securities," says Martin Barnes, managing editor of the Bank Credit Analyst in Montreal. Other types of bonds now carry relatively higher rates. "That\'s a big opportunity," Barnes says. If you buy, you\'ll earn extra profits when the fixed-income markets get back to normal.

"High-yield bonds are very cheap," says Theresa Havell of Havell Capital Management in New York. Interest rates are in the 10 to 11 percent range. Havell thinks that total returns could reach 15 to 18 percent next year, as the markets adjust. And tax-free municipals? "So cheap they\'re a giveaway," she says.

Still, it\'s hard to interest people in bonds once they\'ve sampled the thrill of AOL. Jeremy Siegel, of the Wharton School in Philadelphia, and high priest of growth stocks, sees no end to their dominance. A few have disappointed—Coca-Cola, Disney, Merck—but a few always do. AOL may be down 11 percent from its April peak, but it\'s up 93 percent for the year.

Growth stocks generally boast high and rising earnings, and sell for high prices, relative to those earnings. Value stocks, by contrast, sell for low price-earnings ratios, and often are companies in trouble. In the 1970s and early 1980s, value stocks trounced growth. Then growth took over and never looked back.

Go wrong: Growth investors go wrong, however, when they try to pick a small handful of winners, Siegel says. You might wind up with too much Coke and too little Lucent (or the opposite, when their relative market performance turns).

He also counsels against stocks with P/Es over 75, which currently include Cisco Systems, Sun Microsystems, Yahoo and AOL. High P/E stocks that can\'t keep delivering staggering gains in earnings (or any earnings at all) will get beaten up.

The best growth-stock strategy? Buy a well-diversified fund, Siegel says. One good candidate: the Vanguard Growth Stock Fund, which is the growth half of Standard & Poor\'s 500-stock index (the Value Stock Fund is the other half). So far, the growth fund is up 18.2 percent for the year, compared