Oh, What a Beautiful Rally!

In a frenzy of trading, Wall Street rewrites its record book

Wall Street brokers reported to work last week in a mildly upbeat mood.

The Federal Reserve Board was showing signs of easing its tight-money policy. Interest rates were falling. At long last, it seemed that stocks should look attractive to skittish investors. But no one was at all prepared for the events that erupted: a torrent of trading volume and the swiftest, most spectacular price surge in the history of the New York Stock Exchange.

The Dow Jones industrial average scored its largest one-day and one-week gams on record, finishing at 869.29, up 81.24 points in only five days. The market had its busiest day ever (132.69 million shares traded) and its second busiest ever (95.9 million shares). Before last week's action, daily volume this year had been averaging about 52.3 million shares. The week's total volume of 455 million shares shattered the old record of 329 million set in March. In fact, more shares were sold last week than in the entire year of 1953. Said Samuel Kachel, a broker with Merrill Lynch, who was still answering his phone late on Friday: "I'm tired as all hell. This was an exceptional week."

Exuberant Administration officials saw the rally as a ringing vote of confidence in President Reagan's economic policies and, particularly, the tax-increase bill he pushed through Congress last week. Said Treasury Secretary Donald Regan: "The market forces are beginning to believe our resolve in redirecting the economy. Perhaps it took something like the tax bill to convince people that we're serious about fiscal responsibility." Many Wall Street analysts supported that view. Said Robert Stovall, a senior vice president with the Dean Witter Reynolds brokerage house: "The market was a loaded gun just waiting for someone to touch the trigger. President Reagan and the passage of the tax bill played an important role." Some moneymen cited Reagan's apparent move away from the influence of supply-side economists, who favor tax cuts and play down the impact of budget deficits. Said Donald Trott, a market strategist for the A.G. Becker investment firm: "Increasingly, people in the financial community feel that supply-side economics is voodoo economics. The determination with which the President pursued passage of his tax legislation has sent the message that he is turning to a more conventional policy."