If not for the wave of mergers and acquisitions on Wall Street last week, the stock market might well have tested its low for the year of 1,134.21 on Feb. 22. For aside from the activity generated by the proposed Standard Oil of California (Socal) merger with Gulf Oil, the Texaco/Bass brothers deal, and widespread speculation about other takeover possibilities - especially in the oil sector - the Dow Jones industrial average showed little strength.
Even the mergers and acquisitions had their share of worries riding with them , the primary one being that Congress was losing tolerance for them. Although Socal offer-ed $80 a share for Gulf, the latter's stock remained in the $65-to-$ 70 range, reflecting concern Congress might object to the deal's consummation.
But once again the future of interest rates, and of the federal budget deficit, was the big shadow over the market.
Continued improvement in economic indicators - such as the unemployment rate - shows the economy growing stronger. The concern, however, is not so much over the possibility that the recovery will be short-lived as that economic strength could boost inflation.
To prevent that, the reasoning goes, the Federal Reserve might further tighten interest rates; that would hurt corporate earnings and, in turn, decrease dividends and prices.
The DJIA slid 27.85 points the first three days of the week. Comments by Fed chairman Paul Volcker at midweek on the strength of the economy apparently prompted sharp drops in both the stock and bond markets.
The next day, however, Mr. Volcker said he was surprised the financial markets reacted so negatively; the market that day finished with a small gain. On Friday, the Dow fell 7.33 points, closing at 1,139.76, down 31.72 points for the week.
Newton Zinder, chief technical analyst at E.F. Hutton, says he believes the market is in the midst of a ''technical recovery, following six straight weeks of downturn.'' Thus far, with the Dow moving in the 1,140-to-1,160 range, ''much of the over-sold condition is being relieved.''
Some of the investors who lost during the market's January-February decline, he notes, are also waiting for a modest upturn in order to sell and cut their losses. Before the market can stage a sustained upward move, Mr. Zinder says, the stock market must have a clue from the bond market.
The bond market is highly sensitive to concern about interest rates. It has been in a slide for about two months, caused, most credit analysts believe, by the aforementioned anxiety that the economy may be overheating and the Fed might be forced to tighten credit.
Moody's Bond Survey, however, notes that ''the economy has been expanding for more than a year, with little indication of excess or basic imbalance.''
Although Mr. Volcker last week cited higher capacity utilization at factories in some industries as putting pressure on prices, Moody's observes that ''capacity utilization remains well below what could be considered full capacity (usage).''
Norman G. Fosback, editor of Market Logic newsletter in Fort Lauderdale, Fla. , uses econometric modeling to forecast the direction of the stock market. His current position, he says, derived from these models, is ''uniformly positive, indicating that the bulk of the correction is behind us and that a resumption of the underlying bullish uptrend is near.''
Mr. Fosback has been recommending going ''fully invested'' at present with a diversified portfolio of stocks. Trends in the next three to five years, he says , ''now point to very substantial gains.''
Oil stocks have been especially strong of late because of the wave of mergers and acquisitions. Socal/Gulf is the latest and biggest. Add to that some concern about the Iran-Iraq war and its impact on the flow of oil from the Middle East, and growing demand for oil in the industrial West and Japan.
Even though most analysts figured the Socal/Gulf deal would still go through, it seemed possible that future oil mergers might be much more difficult to accomplish as a result. Rep. John F. Seiberling (D) of Ohio is pushing a bill to bar mergers among the top 20 US oil companies.
If resistance grows, even the push the stock market has been given by activity in the oil sector is likely to diminish.