Holiday Cheer

The old year is one that Wall Street would like to forget. Still, a common sentiment among brokers is that all the stock market needs for a rebound is a sniff of good news about tight money. Last week Paul McCracken, chairman of the President's Council of Economic Advisers, provided just that by suggesting that the time may be nearing for the Federal Reserve Board to relax its credit restraint. Stock prices responded exuberantly. On the New York Stock Exchange, the Dow-Jones industrial average rose 10 points on Christmas Eve and closed the week at 797.65, a heartening gain from its two-year low of 769.93 only a week before.

As welcome as the holiday rally was, many investors might question whether the volatile Dow average really reflects the overall trend of U.S. stock prices. The Dow, which is composed of 30 blue-chip stocks (from Allied Chemical to Woolworth), has made the stock market look sicker than it really has been during its seven-month slide. From its 1969 peak in mid-May, the D-J average has fallen 17%; the decline has been only 13%, or 24% less for the broadly based New York Stock Exchange composite average of all 1,287 listed companies and Standard & Poor's 500-stock average. One reason for the disparity is that the fortunes of one or two companies can greatly affect the Dow average. When Du Pont shares fell by $100 during 1966, the Dow sank 50 points. Anaconda's price fell $40 this year, costing the Dow 20 points.

Many other blue-chip companies have lost their historic appeal to big investors, partly because their growth prospects look small, and partly because of young brokers' thirst for quick gains. Under the circumstances, better news than any rise in the Dow may be that the Big Board's composite average and the S & P 500 have each gained 1% in the past two weeks.

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