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The record-setting bull market continues to charge toward '86

December 30, 1985

New York

No doubt 1985 will go down in the annals of Wall Street as one of the greatest of bull markets. In fact, this 40-month-old steer is among the nimblest hoofers on record. Only one other rally since World War II has been this strong. Only two others have lasted this long. And the gains in 1985 alone are the biggest in a decade.

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A year ago, as the last chorus of ``Auld Lang Syne'' subsided, the Dow stood at a respectable 1,211.57. By mid-February the Dow Jones industrial stocks were gathering steam. The blue chip average was up 6 percent. But the real action was in the second-class markets. The NASDAQ industrial average notched an 18 percent gain in the same period.

By spring the nickel-and-dime stocks took a breather. The torch passed to the Dow. On May 20 the Dow Jones industrial average closed above 1,300 for the first time in history and then ran up above 1,370, before wilting in the August heat.

But autumn ushered in renewed optimism. Within days of the Group of Five agreement (a five-nation pact to devalue the dollar in order to lower interest rates and pep up economies worldwide), the market began a pell-mell three-month rally. Big mergers, lower interest rates, and lower oil prices added fuel to the market's blazing ascent. This time it was the blue chippers -- not the over-the-counter stocks -- leading the charge.

The Dow whipped past the century marks as if such ``psychological barriers'' were mere figments of the technical analysts' imaginations. Fourteen-hundred was easily punctured on Nov. 6. And in record time the Dow rushed through 1,500, eclipsing that milestone on Dec. 11.

Year-end tax selling slowed the market early last week. But by the end of the week, the Dow Jones industrial average was forging ahead once again. It closed at 1,543.00, unchanged in four sessions and posted a 16.51-point gain on Friday. The Dow is now quite close to its all-time high of 1,553.10 set on Dec. 16.

Behind much of the stock market's strength this year were equally impressive and successive rallies on the bond market. Long-term Treasury bonds were yielding about 11.5 percent as 1985 dawned. But for the first time in six years yields fell below 10 percent. Now a 30-year government bond garners about a 9.5 percent return. (As the economy muddles along, it's generally assumed the Federal Reserve Board will ease credit restrictions, thus bringing interest rates somewhat lower.)

The US dollar added another chapter to the tale of the '85 bull. Since its peak in March, the dollar has slid about 18 percent relative to most other currencies. This has boosted, and continues to boost, the stock of big multinational companies.

Inflation stayed low in '85 as commodity prices continued to tumble, with oil prices heading even further south in recent weeks.

Many on Wall Street see 1985 as a turning point in the collective consciousness of investors. This year there was a gradual but growing acceptance that inflation has been licked, or at least temporarily subdued. In periods of low inflation financial assets (stocks and bonds) tend to outperform hard assets (real estate, metals, collectibles). The performance of the stock and bond markets in '85 has supported this perception.

Will 1986 be cast in a similar mold?

Take note of what major Wall Street brokerage houses are saying, and decide for yourself: