Reasons for the Rally

With encouragement from the pickup in business, the stock market rose to a new 1958 high last week. Stocks hit 478.97 in the Dow-Jones industrial average, then recovered from a sharp sell-off to close the week at 473.60. Encouraged by the Senate vote to repeal the 10% passenger and 3% freight taxes, rails closed at 119.17, a whisker under the year's high. But while the confidence of many investors returned, the skepticism of others increased. The short position, which has been rising for five months, was reported last week at 5,795,105 shares, highest since the records began in May 1931.

Though they are in the minority, the bears are sticking to their thesis that the current market rise is only temporary. "Current stock prices are higher in relation to earnings than at any time since 1946," said Harry D. Comer, chief of research for Paine, Webber, Jackson & Curtis. "What the stock market is going on is a large amount of hope."

But other Wall Streeters saw solid reasons for the rally:

P: Said Edmund W. Tabell, top market analyst of Walston & Co., Inc.: "Prices are not determined by earnings but by supply and demand. Pension funds and institutions are buying right along. Last July, institutions stopped buying stocks and bought bonds, but today they cannot buy bonds at such attractive yields."

P: Said Kenneth Ward, partner of Hayden, Stone & Co.: "Common stocks are being purchased as a hedge against long-term inflation. Investors are beginning to realize that many companies are lowering their break-even points, so that when business improves, profits will be better than ever. If we get a pickup in durable sales and a cleaning out of inventories, there will be grounds for a new bull market."

P: Said Heinz H. Biel, partner of Emanuel, Deetjen & Co.: "The market is going up because it has taken some time for people to realize that the recession ended two months ago. The low point in the economy was reached in April, and pretty soon the statistics will prove it. The bear market is over."

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