Happy Mood in the Market

A familiar fever is returning to the stock market. Eager-eyed brokers who had long been afraid or ashamed to call their battered customers are getting back on the line again. Since the first of the year, turnover on the New York Stock Exchange has averaged more than 17 million shares daily--32% above the record-high average of 1968. Within the past two weeks, the N.Y.S.E. has recorded both its busiest day (21,681,000 shares) and second busiest day in history; total volume last week rose above 100 million shares for the first time. This gigantic volume has been associated with neither a panic nor a wild speculative bout, but with a steady price advance that last week lifted the Dow-Jones industrial average seven points to a close of 868, the highest in more than 18 months. The index has recovered two-thirds of its losses between the December 1968 high of 985 and last May's low of 631.

Easier Money. Small investors are still wary. The immense volume is coming from big institutional investors, which are recommitting to the market some of the huge cash reserves that they built up by sitting on the sidelines during much of 1970. Last November, mutual funds held more than 9% of their assets in cash v. a normal 5% or 6%. The institutions bought modestly during the early stages of the recovery from the market's deep price slide, and some regret their caution. By Dec. 31, prices had recovered enough for the Dow-Jones industrials to close 1970 with a 4.8% gain; the average mutual fund reported a 9.3% drop in the value of its holdings. Fearful that clients will accuse them of letting the market advance elude them, the institutions are now buying aggressively.

President Nixon's expansionary budget has convinced many Wall Streeters that the Government will revive the economy and that inflation will continue at a relatively high rate. Manhattan's Argus Research, which had an excellent forecasting record last year, predicts that pretax profits this year will jump 15% to 18% above 1970. Another bullish factor is the dramatic decline of interest rates. The yield on high-quality corporate bonds has dropped from a 1970 peak of 9.4% to 6.9%, a return that many money managers believe can be bettered in stocks.

Pshaw. Convinced that blue chips have already had their fast runup, institutional investors are now concentrating on the vast mass of "secondary" issues. So far, the secondary issues into which the money is flowing are fairly good quality; brokers cannot yet see much sign of a speculative binge in low-priced and questionable stocks. Still, some of the old ebullience is returning. Market letters are full of advice to the investor on how to look for "bargains" among the many stocks that remain 50% or so below their peaks. The Dines Letter recently disdainfully dismissed any thought of conservatism: "Now is the time to go for blood . . . We understand some reticence on the basis that business is bad, and [fourth-quarter 1970] earnings reports will be awful. Pshaw. Who doesn't know that? The market doesn't discount the past." This airy optimism could prove misguided if the economy does not recover rapidly. For the moment, though, the change from Wall Street's black gloom of last May to the rosy hope of today is a striking development.

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