Big gain, high volume: Is pace set for 1980?
The stock market had a belated New Year's celebration last week, supporting the view held by many analysts that 1980 will be a good year for equity investors.
The week's trading volume on the New York Stock Exchange was the heaviest in history. Much of it was from large institutional investors -- pension funds, mutual funds, and banks -- which by historical standards have a small portion of their portfolios in stocks.
Now, though, "the large players seem anxious to get into the market," said Allan Waldron, chief investment officer of Rotan Mosle Inc., one of the largest regional brokerage houses in the Southwest.
For the week, the Dow Jones industrial average rose 29.69 points, closing at 858.53.
Mr. Waldron looks for institutional investors to shift more of their cash into stocks in 1980, which could raise the tide of stock prices for all investors. "Many pension funds, for example, were unhappy with their portfolio earnings last year, and they have directed their money managers to put more cash into equities," he claimed.
The number of trades of large blocks of stock -- 10,000 shares or more -- was heavy last week, the clue to substantial institutional activity. These large transactions averaged only 25 percent of the daily volume on the New York Stock Exchange in the previous two weeks, but climbed to a high of 34 percent last week, on Jan. 10.
The Dow Jones industrials scored particularly well, because the basic-industry stocks making up the index had been undervalued and lagged behind recent improvements in the market in general, asserted Richard Nieland, head of equity investments for Funds Advisory Company, an institutional money-management firm in Houston.
"Since the stock market lows in late October there has been substantial recovery as measured by other market indexes, and now we're seeing some catch-up in the Dow," he said.
One immediate explanation for the rise in stock prices last week was news from the chief Commerce Department economist, Courtenay Slater, that the performance of the US economy in last year's fourth quarter was stronger than expected. Overall economic activity grew at an annual rate of 2 to 3 percent, Mrs. Slater estimated, rather than the 1 to 1.5 percent projected several weeks ago.
Some analysts hold that the most telling feature of the stock market is that it has not plummeted in the wake of recent shocks on the international scene, principally the Soviet invasion of Afghanistan and the continued holding of American hostages in Iran.
"The market has demonstrated consistently that it wants to go up. Since the lows of last fall it has held up well despite the shocks of news events," Mr. Waldron noted.
Edward H. Dossman, branch manager of the Houston brokerage firm eppler, Guerin & Turner Inc., sees plenty of reasons for a strong market this year. He said that during a recession stocks typically bottom out and move up well in advance of the upswing in general business activity. A recession before mid- 1980 will cause an upswing in stocks later in the year, he maintained. Mr. Dossman looks for interest rates to continue falling in 1980 -- the prime rate charged by commercial banks has moved down from the high level of late last year -- which he believes is a favorable sign for stocks. Also, he said, stocks often perform well in national election years.
"The prospects for 1980 are good," agreed Ira W. Painton, president of the Galveston, Texas-based Securities Management & Research Inc., which manages three mutual funds. Mr. Painton expects the Dow to reach the 1000 mark by year-end, and he too foresees growing investments in the stock market by fellow institutional investors.
"Things have been so unsettled in the market that we expected a significant dip. It hasn't come, so we're moving more of our money into stocks, but cautiously," he added.