Reagan luster tarnishes a bit on the stock market

The honeymoon is over. Wall Street, which developed an instant love affair with Ronald Reagan, is now waiting to see if it should begin divorce proceedings.

Lee Idleman, senior vice-president of Dean Witter Reynolds Inc., a brokerage house, says, "We think it will become clearer after Inauguration Day that the new administration will have some unpleasant or unpopular decisions to make if it is really serious about controlling inflation. Preliminary indications are that the Reagan task forces are not finding it easy to spending; specific proposals may not be unveiled for some weeks yet."

Mr. Idleman concludes that "any failure to come to grips with inflation probably would also cause investor disappointment."

Judging from the latest inflation statistics, Mr. Regan will have his hands full. The consumer price index rose 1.1 percent in December, resulting in a 12. 4 percent rate for all of 1980.

Wayne Stork, executive vice-president of Delaware Investment Advisers, says he believes the market will have trouble advancing until "the dominant of focus switches to an analysis and discussion of the tax and budget proposals of the incoming Reagan administration." Since this will take time, he forecasts the market is unlikely to dip below the 890 to 900 level or rise above the 1,000 mark again.One potential danger in the meantine, he says, is a possible Chrysler bankruptcy.

And, in a further negative assessment of the outlook, Gary Wenglowski, director of economic research at Goldman, Sachs & Co., says he has his doubts that the Reagan administration and Congress will do anything about inflation. He says, "Since the Kemp-Roth tax cuts do not evidence a willingness of policymakers to accept political costs to cure inflation, they are unlikely to moderate the public's inflation expectations, and they run the risk of doing the opposite." And despite Mr. Reagan's freeze on federal hiring last week, he adds, "the latest figures on federal spending and federal employment suggest that the agencies and their constituencies are endeavoring to increase expenditures and hiring in the near term as a buffer against future cuts by the new administration."

The month of January looks as if it's going to be a loser. The Dow Jones industrial average has dropped about 60 points for the month, and the likelihood of recouping most of those losses this week is slim.

Last week was a continuation of the downtrend. The Dow lost 33.10 points, closing at 940.19. Volume remained on the modest side, with 40 million-share days the norm. The downturn came in the face of a week that featured the inauguration of President Reagan and the release of the American hostages from Iran. The major cause of the slide was continued concern that interest rates would rise. The concern was bolstered by forecasts by Henry Kaufman, Salomon Brothers' chief economist, and Albert Wojnilower, Economist at the First Boston Corporation, that interest rates have yet to peak.

Mr. Kaufman, speaking before a Philadelphia investment audience, said rates should remain "highly volatile in 1981," and he predicted that rates would move above the record 21 1/2 percent prime set last year.

Despite the slump, Texas International was a big winner last week. The company's stock soared on its report of a major natural gas discovery in Louisiana, Curtiss-Wright was another winner, as Kennecott continued to buy the stock on the open market.

Guess again.

The Steadman Federal Securities fund, a money-market mutual fund, went out on a limb last fall and guessed that interest rates would be heading lower. So it moved most of its $7 million into six-month Treasury bills. The result is that the fund stands out in the latest Donaghue's Money Fund Report. It is yielding only 10.2 percent over a 7-day and 30- day period and its average maturity is 76 days, the longest of all the funds. By way of comparison, the average yield for all the money-market funds covered by Donoghue is 17.06 percent for a 7-day span and 16.70 percent for a 30-day period. Funds that invest in government securities alone, like the Steadman Fund, are yielding between 15 and 17 percent. For the most part, they have average maturities of 10 to 30 days.

Paul M. Harbolick, an executive vice- president of Steadman, says the fund's performance should begin to improve soon. "A lot of the longer-term maturities begin maturing around Feb. 2, with the great bulk of them maturing at the end of March," he states, "and by reinvesting them at current rates, we should be yielding in the 14- to 14 1/2-percent area."

And in what length of maturity will he be reinvesting then? In short-term securties, he answers, with a maturity of 1 to 45 days. "We feel that rates will be churning flat for the next three to six weeks until more information is available on the economic policies of the new administration," he explains.

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