Election Elation on the Street

The stock market signals a recovery with a record-breaking surge

The financial markets hate surprises. For that reason Wall Street was even edgier than usual on the eve of a crucial mid-term election that might generate a sudden shake-up in national economic policy. But when the news came from the polls that the Republicans had kept control of the Senate and lost no more House seats than expected the New York Stock Exchange was overwhelmed by relief—and euphoria.

By 1 p.m. on the day after the election, the Dow Jones industrial average was up 26 points, to 1048. Suddenly the Dow was within easy striking distance of a record that had stood unsurpassed for nearly a decade: the peak of 1051.7 reached on Jan. 11, 1973. For about two hours the average slipped, as it has every time the record has been threatened in the past. Then, like a long-distance runner sprinting those last yards toward the tape, the market surged ahead by 20 points in the final hour. When the closing bell rang amid the boisterous cheers of the floor traders, the Dow had climbed to an alltime high of 1065.49. The rise of 43.41 points on the day was also a new record, eclipsing the 38.81-point increase of last Aug. 17.

Leading the buying charge were the big institutional investors, including pension funds, insurance companies and bank trust departments. Scared of being caught on the sidelines during Wall Street's greatest rally, portfolio managers snapped up stocks at a panic pace. Their favorites were the blue chip shares of giant corporations. IBM was up 3⅜ to 85¼. AT&T jumped 2¼, to 62¾.

Once the Dow's record high had been broken, the institutional investors got the jitters. On Thursday thousands who feared that the rally might stall decided to take their profits while they had a chance. But individual investors, many of whom were jumping back into the market for the first time in years, continued to buy with abandon. As the deluge of orders poured in, the electronic tape that records trades lagged behind by as much as 64 minutes. When the selling frenzy ended, the Dow average of blue chips had lost 15 points during the day. Hundreds of second-tier stocks, however, continued to rise. The immense trading volume of 149.4 million shares broke the one-day record of 147.1 million set on Oct. 7. On Friday the Dow rested. It eased ahead by 1.56 points to finish at 1051.78, up 60.60 for the week.

Several encouraging economic trends have sparked and sustained the rally, which has pushed the Dow up by an astounding 275 points (35%) since mid-August. Inflation slowed to an annual rate of only 2.4% in September, a crawl by comparison with the 8.9% pace of last year. Because prices are rising less rapidly and the Federal Reserve Board has eased its monetary policy, interest rates have dropped sharply in the past three months. The bench-mark prime rate charged for corporate loans, for example, has dipped at some banks to 11.5%, from 16% in July. Investors are increasingly confident that this dramatic progress on the inflation and interest-rate fronts will spur a brisk economic recovery next year.