Wall Street and the White House

Wall Street has become oblivious to the rest of the world.

Budget deficits that concerned investors a month ago don't seem to count now. Fighting in the Middle East, which threatens vital oil supplies, is shrugged off. Ignored are splits in the pro-business White House over such issues as imposing sanctions on United States companies doing business with the Soviets against the President's desires.

Not even a gloomy economic forecast by Murray Weidenbaum, who resigned recently as chairman of the President's Council of Economic Advisers, could dampen investors' enthusiasm.

In an interview published Friday, Mr. Weidenbaum said last year's tax cut and the President's unbending stand to increase defense spending means the federal deficit really isn't being reduced. At one time, a statement like that would have set the bears on Wall Street growling. Instead, notes Monte Gordon, director of research at the Dreyfus Corporation, an investment management firm, Wall Street is riding ''a tidal wave of optimism.'' And every time the market rises further, the wave grows bigger as more investors, like eager surfers, try to ride it.

The wave last week again sent investors, awash with cash, on a wild ride. The Dow Jones industrial average jumped another 14.18 points, closing at 883.47.

Volume records continued to be smashed. In the past two weeks, more than 1 billion shares were traded, more than the total number of shares traded in all of 1960. Investors suddenly decided that investing in the stock market was preferable to going into short-term Treasury bills or other cash equivalents.

The reason Wall Street felt it could ignore budget deficits, Middle East problems, and splits within the administration is that interest rates have been falling sharply. At the end of last week, however, rates started to stabilize.

Even though the Federal Reserve Board lowered the discount rate - the rate the Fed charges banks borrowing money from it - a half of 1 percent to 10 percent Thursday, the bond markets generally shrugged off the move. Instead, notes William Sullivan, senior vice-president at the Bank of New York, the bond market dropped and yields rose. He pointed out that investors were watching the federal funds rate, which showed signs of inching above 9 percent. Federal funds are the excess reserves that banks have, which they lend other banks overnight.

These short-term rates are moving up, Mr. Sullivan believes, as the Fed tries to stabilize rates. ''The Fed is no longer in the process of easing,'' he says. He says he doesn't expect the Fed to further cut the discount rate in the near term. Nor does he expect a big rush by banks to drop their prime interest rates to 13 percent, from the current 131/2 percent. Instead, the Fed will wait to see how the economy responds to the influx of money already provided.

Investors also seemed to feel Washington had developed a grasp over its fiscal problems. For example, Wall Street didn't blink when Mr. Weidenbaum told the Associated Press that the President's insistence on huge military spending was wreaking havoc with the budget and the economy.

Commented Mr. Gordon, ''Mr. Weidenbaum left without any aura of omniscience. He is not like Alan Greenspan.'' Mr. Greenspan, who heads up his own consulting firm, Townsend-Greenspan, has a wide following in the business community. He was chairman of the CEA for President Ford.

Instead of listening to Weidenbaum, investors tuned into some of the technical analysts on Wall Street. For example, the market's enthusiasm was fed on Thursday by news that Robert Farrell, a technical analyst at Merrill Lynch & Co., had reversed himself and was now more bullish on stocks.

Mr. Farrell told Merrill's customers the market ''is likely to extend its recovery, with only moderate pullbacks for seven to eight weeks, from (its recent) low.'' He predicted the market would rise to the 925-950 level on the Dow before a major bout of profit taking sets in.

Farrell's comments, combined with the market's strong performance, started to generate interest among individual investors.

''We did more business on Thursday,'' commented Robert Stovall, ''than we did last Wednesday (Aug. 18), when volume hit 132 million shares.'' Mr. Stovall is senior vice-president at Dean Witter Reynolds Inc., a brokerage house that deals a lot with the public. But even with the public starting to buy and sell stocks , Stovall said, ''We've noticed that many of our clients - both individuals and institutions - have yet to participate in the market.''

Instead, he says, many investors appear to be moving money from the short-term money markets to long-term municipal bonds and the longer-term bond market.

The fact that many investors have yet to participate in the market doesn't surprise John Mendelson, a technical analyst at Morgan Stanley & Co. Mr. Mendelson says the current market reminds him of the 1974-75 bull market. At that time, stocks bottomed out in the fall of 1974 before soaring early in 1975. As the market rose, market commentators kept saying they were ''waiting for the other shoe to drop,'' that is for the final washout in the long bear market. While many investors sat on the sidelines waiting for the pullback to the October-December 1974 lows, the market rose.

Mendelson recalls that stocks soared from the 600 level around New Year's to 880 by late June ''as investors chased the market all the way up in search of a 'test' of the October-December lows.'' He concludes, ''My bet is that we are seeing an instant replay of the early winter of 1975.''

Dallas-based Dresser Industries drew President Reagan's ire for violating his trade sanctions against the Soviets when Dresser's French subsidiary shipped compressors to them. However, on Wall Street last week, Dresser's stock, along with the rest of the oil service industry, bounced with the market. Of more concern was Dresser's purchase of International Harvester's construction equipment business for $100 million to $150 million.

''Dresser likes to buy distressed businesses,'' says Kevin Simpson, an analyst with Drexel Burnham Lambert Inc., ''and some recent purchases haven't worked out well.''