Faith Flowers Again on Wall Street

After a year of shifting moods -from euphoria to uncertainty and for a time despair -the stock market seems to have come full circle. As 1976 draws to an end, traders are once more looking ahead with rising confidence, buoyed by a growing conviction that President-elect Jimmy Carter can put zip into the lagging economy. Before the election, Wall Street nervously regarded the Democratic candidate as a big-spending populist, but it has been won over in recent weeks by Carter's appointment of political moderates to top Administration posts. Says Reynolds Securities, Inc. Vice President Robert Stovall: "'There's a growing chance that Carter might give us a market equal to that of the first year under President Kennedy" (when the Dow Jones industrial average of 30 blue-chip stocks rose 18.7%).

Reflecting the new optimism, the Dow has already climbed from a postelection low of 924 on Nov. 10 to 979 at the close of trading last week, a gain of 55 points in five weeks. Monte Gordon, research chief of The Dreyfus Corporation, believes the Dow could hit 1100 in the first six months of next year, surpassing its alltime, January 1973 high of 1051.70. About midyear, Gordon predicts, the Dow will slide back to 1025 or so before moving up again to close 1977 somewhere between 1100 and 1150. Analyst Edson Gould of Anametrics, Inc. who has gained a reputation for accurately calling market turns (TIME, Apr. 26), is even more sanguine. He believes that by September the Dow could go as high as 1250.

The rise in confidence is evidenced by the broadness of the market's recent advance. Investors are showing increasing interest in a wide range of stocks of smaller companies in residential building, home-furnishings and semiconductor equipment. Until fairly recently, such secondary stocks were largely overlooked despite their attractively low price-earnings ratios and relatively high dividend yields. One result of this buying surge: price gains in the general market have outdistanced the Dow's blue-chip index. So far this year, the Dow has advanced 15%. The index of all stocks traded on the New York Stock Exchange (roughly 1,550) has gone up 18.8%. All this portends a good, maybe even record year for brokerage houses in 1977.

In any case, few on Wall Street will be sorry to see 1976 end. It has been a strange year, in which a volcanic opening led only to months of puzzlement and frustration. Paralleling the economy's robust first-quarter growth, the Dow spurted ahead 157 points, to 1009, from Jan. 1 to March 24. But for the next six months the market moved listlessly sideways. Tantalizingly, the Dow pierced the 1000 mark no fewer than eleven times during the year, only to fall back every time. On Sept. 21, the index reached 1014, its peak for the year, but then it fell into a slump that knocked 90 points off the average and for a while turned Wall Street into a boulevard of dented dreams.

Among other oddities of the year, the market failed abysmally as a political indicator. Wall Streeters have long traced a connection between stock prices and presidential campaigns: if the Dow index is higher on election eve than at the start of the year, the party in power retains the White House; only if it is lower do the outs win. That rule held true in eleven of the 14 presidential elections held from 1920 through 1972, but Carter triumphed over the odds this year--proving once again that nothing involving the market, including the present ebullient predictions, is ever certain.

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