Higher Ground

By Gordon M. Henry

On the New York Stock Exchange, large round numbers are often psychological barriers. When the Dow Jones industrial average approaches such milestones as 1000 or 1200, it often hesitates, like a steeplechase horse in front of a high hedge. Last week the market rushed up to the 1500 mark. At the opening bell on Thursday the Dow Jones industrial average stood at 1484.40, having shot up 150 / points in two months. Amid frenzied trading, the Dow quickly jumped another 16 points. Twice during the morning the average temporarily pierced the 1500 mark, but it did not remain there long. Soon investors moved in to sell stocks and cash in their profits. The index ended the day down 1.49. On Friday the Dow fell another 5.73 points to close the week at 1477.18.

A visitor to Wall Street might be puzzled by some worried faces. During the past few weeks the Dow Jones index has repeatedly hit new highs. Nonetheless, many investors are uneasy. The euphoria of past rallies is missing, and few champagne corks are popping. While the Dow index goes ever higher, financiers are worried because no one understands exactly why it is moving up so fast.

The economic signs these days are mixed. Interest rates on five-year Treasury bonds have fallen from 9.62% to 9.13% since August, and unemployment in November was 7%, its lowest level since President Reagan took office. But growth is not strong, and there are few signs of a coming pickup. The gross national product in the third quarter grew at an annual rate of 4.3%, but fourth-quarter expansion is expected to be slower. Some Wall Street sages, though, do not worry about trying to figure it out. Says Barton Biggs, managing director at Morgan Stanley: "The best kind of market is one like this, when no one understands it."

When the autumn rally started in September, it was a blue-chip affair. The rising stocks included mainly companies like IBM and General Foods. Now it is a much broader rally. Says Leon Cooperman, a partner of Goldman, Sachs: "The whole market has performed much better than expected." Airline and other transportation issues began doing well in November, and last week high- technology stocks, which have been in the dumps for nearly two years, also took off.

Leading the investment charge are such large institutions as pension funds, insurance companies and banks. Individual investors remain skeptical. Says Ralph Bloch, an analyst at Moseley, Hallgarten, Estabrook & Weeden: "The public are disbelievers. They're waiting for a sure sign."

The optimism on Wall Street in recent weeks is shared by traders abroad. Since January the London Stock Exchange has risen a record 53.1%, and West Germany's market 99.6%. In Milan, the main Italian market is up 114.1% for the year, while France's has experienced a 52.8% rise. Morgan Stanley's Biggs says that this "world stock-market surge" shows that investors anticipate a * "synchronized worldwide expansion." During the past few years the U.S. economy has been strong, while Europe limped along with low growth. Now Europe is moving forward quickly, even though the American expansion has slowed.

Effusive optimism, though, flies in the face of two troubling statistics. The $200 billion U.S. budget deficit could drive interest rates back up and stifle growth. And the $150 billion trade deficit continues to drain money out of the American economy. Finally, today's stock boom is built in part on debt accumulated to pay for the recent spate of megadollar takeovers and leveraged buyouts.

On Wall Street these days, though, naysayers are more and more in the minority. Even if stock watchers do not understand why the market is moving so fast, they like this running of the bulls.

With reporting by Tom McCarroll and Frederick Ungeheuer/ New York