Cracking a Magic Barrier

IN the past seven years, the 1000 mark on the Dow Jones industrial average has become a kind of mystical barrier in the minds of investors. The market's most closely watched barometer began flirting with 1000 as early as January 1966, but it always fell back without closing above that figure--to the chagrin of Wall Streeters who hoped that a widely ballyhooed breakthrough would give a big boost to public confidence in the market and usher in a new era of prosperity for the securities business. Last week, however, the Dow finally crashed through. On Tuesday it closed at 1003; later it wobbled back below 1000 but came back to close the week at a record high of nearly 1006.

The elusive goal was reached at the climax of a surge that has lifted the index more than 80 points in a month. The drive has been propelled by unusually powerful forces: the hope of peace in Viet Nam, a strengthening economy, soaring corporate profits, diminishing inflation. President Nixon's landslide victory provided the decisive impetus. The final push began immediately after the election, and it hoisted prices on a broad range of stocks, from old reliables like A T & T to such solid glamour issues as IBM.

Now that the breakthrough has been achieved, though, what does it really mean? In direct terms, not much for the general economy. A rising market tends to make people feel richer, and thus the publicity attending the breaching of 1000 might possibly prompt some additional consumer buying. John W. Corcoran, chief economist of Donaldson, Lufkin & Jenrette, a Manhattan investment house, also notes that higher stock prices make it easier for businessmen to raise money, by selling new shares or borrowing. At most, however, these are indirect effects.

The Dow's breakthrough above 1000, says Economist J. Kenneth Galbraith, "will encourage the susceptible, but mostly it was useful to people who needed an excuse to get drunk." Nobel Prizewinner Paul Samuelson views the feat as "a belated recognition of what has been happening to the rate of growth of the economy." The main question, he believes, is why the index took so long to break 1000.

One answer is that the Dow Jones industrials present a somewhat distorted view of the market. The average is composed of only 30 stocks, and though they do represent about one-fourth of the value of all shares traded on the New York Stock Exchange, they are mostly rather staid blue chips. Partly because the Dow does not include faster-moving computer, electronic, photography and drug issues, it has been late in mirroring the market's true strength. More representative, broadly based market gauges like the New York Exchange reached record highs earlier.

Still, the Dow is the oldest (88 years), most easily grasped and most widely reported stock average, and as such it is synonymous with "the market" in the minds of many investors. Now that it has cracked the 1000 barrier, brokers hope that small investors who have largely fled the market since the 1970 debacle will return and give a needed lift to securities houses that have been struggling through a generally low-profit year. Says Mutual Fund Manager Fred Alger: "That the Dow went through 1000 is front-page news in every paper in the country, and that will get investors out of the woodwork." Some of Wall Street's more effusive bulls are already predicting that within a year to 18 months, the market will have entered a golden age of trading volume reaching 40 million shares daily on the Big Board and a Dow Jones average hovering around 1200. Such euphoric talk has been heard before and proved wrong--but the breaking of 1000 at least removes one psychological barrier to having the dream come true.

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