Dow's romance with 1,000 wears a bit thin
It's only a number. The Dow 1,000. But over the years, it's taken on a certain romance for the men and women of Wall Street. "The Reagan rally" briefly carried the stock market over the 1,000 mark last week -- just the fourth time that eve happened. Then it skittered on back to more familiar, three-digit territory -- just under 990 -- at the close Friday.
In some ways, the romance has worn a little thin because of the previous trips to the end of the rainbow. For example, Walter Cronkite merely mentioned that the Dow had made it over the 1,000 level midway through his newscast instead of leading with the item as he had in the past. Prior to mentioning the Dow's move, in fact, Mr. Cronkite noted that continental Illinois Bank had raised its prime interest rate to 17 percent, up from 16 1/4 percent. And the New York Times did not make it a Page 1 as it has in the past, but mentioned it in its "Inside" directory.
But the average's rush over the 1,000 mark still holds a lot of public interest.Helen Koik, manager of Merrill Lynch's information booth at Grand Central Terminal in New York, says crowds watching the ticker tape before the move were larger than usual. And Ralph J. Acampora, a technical analyst for Kidder, Peabody & Co. Inc., says the move over the 1,000 mark has a "psychological significance."
However, analyst Larry Wachtel of Bache Halsey Stuart Shields Inc. says "1, 000 has no significance at all." Mr. Wachtel adds, "You have to be a masochist to want the Dow to go over 1,000 because every time it does, it gets the stuffing kicked out of it."
In fact, many investors use the level as a good place to take profits on stocks bought at a lower level. Notes one broker who works for L. F. Rothschild , Unterberg, Towbin, a brokerage house, "I have a pension fund account who puts in sell orders when the Dow hits the 1,000 mark." Why? "Because they remember that if they had sold at this level last time they would have been smart," he answers.
The selling by the large institutions, in fact, helped to pull the market back down to earth on Friday, Nov. 21, when the Dow closed at 989.93, down over 10 points from Thursday but up 3.58 for the week. The sell-off from 1,000 prompted Monte Gordon, director of research at the Dreyfus Corporation, to note, "The power of positive thinking pushed the market over 1,000. Now, it has to contend with the real problems facing the country."
These problems were the subject of a speech on Nov. 21 by Henry Kaufman, a partner at Salomon Brothers. Mr. Kaufman said, "We now face several unusual and difficult inflation prospects for the start of another business recovery." Specifically, Mr. Kaufman said the problems include:
* Wage demands ranging from 9 to 11 percent annually.
* Further increases in oil prices as a result of domestic deregulation and upward pressures from ahead.
* A rising demand for agricultural products during a tiem of bad weather, suggesting sharply escalating food prices ahead.
And, Mr. Kaufman, a specialist in the debt markets, said "our leaders should not ignore the many worrisome aspects in our credit system including the rapid growth of debt and accommodation of the credit system to the inflationary spiral." He notes, "Financial institutions are being restructured by regulation to become inflation pass-through vehicles."
Whether the market will stay at its lofty level considering these problems is the sub! ject of some debate on Wall Street. The "bears" -- those who believe market prices are headed downward -- claim the broaching of the 1,000 mark often marks a turning point for the market. The individual investor, often the last one in one the ride, is drawn into the market by the headlines. Once the public has been sucked into the market maelstrom, more sophisticated investors, who have bouth stocks cheaper, sell out. Some rather classic "bear markets" have originated from this level, including one in 1972 which went from 1,067 to 570.
The "bills" in turn claim the Dow average is on its way to 1,500 or even 2, 000. They point out that stocks are the last greater undervalued investment in America: real estate, art, diamonds, and commodities have all had their day in the sun. Now it's the time for stocks to move.
And there is still a third camp which says it really doesn't mean anything when the Dow goes over 1,000. This group points out that the American Stock Exchange Index, which is a composite of smaller, more speculative companies, has been flying high all year. High technology stocks, oil companies, and hot-over-the-counter stocks have doubled and triples in value over the past year while the Dow average, a compilation of 30 blue chip companies, has muddled along. The Dow average has been around since 1884 when Charles Dow and Edward Jones, founders of Dow Jones & Co., first published it as an experimental market barometer.
When the market made its move over the 1,000 level, the propelling force was a surge of renewed interest in the energy stocks, particularly Texaco Inc., up 3 7/8 for the week.Investors were encouraged by a company statement that increased drilling offshore could provide significant new production and a research report sent out by Constantine D. Fliakos, an analyst at Merrill Lynch. In the report, Mr. Fliakos raised his earnings estimate for 1980 from $8 a share to $8.50 a share. Mr. Fliakos also calls the company's stock "undervalued," noting that the company had a prior luckluster earnings perfomance and a suspect future because of a sharp decline in its US oil and natural gas reserves.
Next year, the Merrill Lynch economist is forecasting earnings of $8.75 a share for Texaco and by 1984, he predicts, earnings will come to $12 per share, assuming that Us crude oil prices will average $45 a barrel.