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The Question for Wall Street: How Far, How Fast?

The rush is on to buy American stocks, and that is giving a rush to the American stock market.

The market stunned investors on Thursday, when the Dow Jones industrial average breached the 7,000-point milestone. And that came quickly on the heels of breaking 6000 last October.

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Behind that fast pace is the simplest of investment quips: "More buyers than sellers."

* Baby boomers are putting 62 percent of their retirement savings into the stock market.

* Foreigners are flocking to US stocks, as the combination of safety and performance makes Wall Street more alluring than markets of riskier developing countries.

* Even American corporations are in the game. Last year, they bought back $176 billion worth of their own stock, compared with $99 billion in 1995.

"They may feel the shares are cheap or they can't think of anything else to do with the money," says Richard Peterson, a spokesman for Securities Data Company in Newark, N.J. The shares still look cheap to other companies as well. Mr. Peterson says January, with $83 billion worth of announced mergers, was a record month.

* About 75 percent of investment-advice newsletters are invested in the stock market. "This is near the peak of bullishness," says Mark Hulbert of the Hulbert Financial Digest, based in Alexandria, Va.

It's not hard to see why. This is an investor-friendly economy.

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Economic growth appears to be slowing to a pace modest enough to keep interest rates low. On Friday, for example, the government reported industrial production flattened in January after rising sharply in the final months of the year.

Inflation remains under control. On Friday, the Labor Department reported the producer price index, which measures wholesale prices, actually fell 0.3 percent in January. On Wednesday, the government will report if this trend carried over to consumer prices.

"It's an ideal period," says Mark Keller, who heads the Investment Management Group at A.G. Edwards in St. Louis. "There is a healthy economy with stable interest rates and very low inflation," he says, "and people would be willing to pay more for stocks than they have historically."

What next?

But the question facing many investors is: "What next?" Not just for the Dow, but for their own investment decisions. When should they think about buying more stocks? When should they think about selling what they have?

The Dow at 7000 puts such questions at the top of the list for Mr. Keller, who has responsibility for $600 million in stocks. He needs to know how much a company is worth, and he wonders whether the stock market is a bit too enthusiastic. In only 82 trading days, the Dow average had galloped 1,000 points - a historic pace - interrupted Friday with a loss of 33.48 to 6988.96.

"The pace is of some concern to me, since the various measures of value are not rising as quickly as the market," says Mr. Keller. And "value" is the key word, knowing how much something is worth at a specific time.

Keller likes to look at the long-term sustainability of earnings. Will a company's earnings continue to grow two or three years from now? His other criteria include companies with a competitive advantage in their industry, substantial cash flow not earmarked for a specific use, and substantial ownership of shares by top management.

He says it is increasingly difficult to find value. Stocks of large companies, such as IBM or Intel, are expensive.

Unique period

But historical measures may not be meaningful, says Michael Clowes, editor of Pensions & Investments, a publication that reports on the $6.2 trillion pension-fund business. Mr. Clowes makes the case that this is a unique period of peace and prosperity. With no sign of economic distortions, he says, "I could make a case for 10,000 on the Dow."

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