Runaway Market?

Is it, as one Wall Streeter called it, "a runaway market--a panic of dollars into stocks?"

Last week the Dow-Jones industrial average rose 15.21 points, burst through the 500-mark for the fourth time in history. At week's end the average stood at 501.76, highest since Aug. 5, 1957, and within hailing distance of the alltime postwar high of 521.05. Even more surprising was the volume: 18,581,325 shares, heaviest week of the year. Instead of tapering off at the weekend as it often does, the buying increased steadily, left the tape minutes behind as 4,427,280 shares, double the normal volume, changed hands on the closing day.

Among the causes for the buying spree were the inflationary implications of a proposed $8 billion hike in the national debt ceiling and a new high for the consumer price index, which climbed to a record 123.7 in June. There were also some good business reasons. The depressed machine-tool industry noted a 7% rise in new orders from May to June. Second-quarter earnings in some key industries showed a better recovery than expected, indicating that a snapback in profits may be closer than previously anticipated. Many investors were also quite obviously influenced by the headlines from the Middle East; they expected the crisis to reverse inventory liquidation, start a buildup, particularly among hard-goods manufacturers, whose stocks are down sharply.

For some Wall Streeters, the rise was a little too fast for comfort; they argued that no earnings anywhere in sight can justify present stock prices. But with the end of the recession coinciding with a foreign crisis, a lot of investors apparently felt that means either " 1) a rising peacetime economy, or 2) business stimulated by war scares, both of which mean increased inflation.

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