Stocks remain calm amid a money Maelstrom

Tough words, tough market. On Wall Street last week, the password was tenacity. Defense stocks traded briskly, showing strength in anticipation of and reaction to President Carter's stern international stance in his State of the Union speech.

But some analysts are worried. The resilience may attract too many investors and the resurgence of interest in stocks may be too much to ask. Already, they say, too many happy investors have recounted tales of their fortunes to the neighbors; a correction is inevitable.

For now, however, the market is proving rock-sturdy as the world of money reels around it.

Gold prices skidded $200 an ounce on London markets in five days. Like other oil companies. Exxon Corporation reported hefty profits of $4.3 billion for 1979, a new record for any US corporation. Auto companies continued laying off workers. And inflation in 1979 was 13.3 percent, the Labor Department said. This was the worst rate since Harry Truman was president in 1946.

But with uncertainties persisting about Afghanistan and Iran and despite warnings from some government officials that further defense outlays could spur inflation and would not prevent recession-related profit losses, the stock market held strong.

The Dow Jones industrial average finished at 876.11, up almost nine points over the week, although analysts said the Dow yardstick failed to accurately measure the bubbling activity all around it.

Wall Street observers credited President Carter's direct anti-Soviet speech for much of the upturn.

"The market does not do well in uncertainty, and it does not do weel when any president is unsure," says Salim Shah, an analyst with the Los Angeles investment firm, Crowell-Weedon & Co.

"Now, there has been a belated realization that US corporation assets are available in the stock market at reasonable prices. The defense issues were the first beneficiaries," he says.

Such stocks as Boeing, Raytheon, and General Dynamics all staged impressive one-day gains during the week. And Rockwell International began talking about reviving the B-1 bomber.

Oil stocks also advanced even though House and Senate conferees finally sealed an agreement on the "windfall profits" tax of US oil companies.

"It's another level of regulation they will have to live with," says Mr. Shah. "But fortunately the price of oil is enough so they can afford it. Now the tax is a known quantity. Investors can factor it into [projected] earnings."

Both small and large investors are trading. Nearly 60 million shares were exchanged Jan. 24 in the middle of the third busiest week in the market's history as large institutions continued to switch large cash reserves into stocks.

"There is so much money on the sidelines that the portfolio men jump right on board when something like this happens," says

Harry Harwood, a vice-president for research with Bateman, Eichler, Hill, and Richards Inc., one of the largest investment houses in southern California.

Mr. Harwood says the federal "underspending" for defence during the last decade has made defense stocks a lucrative investment for many months now. Not much room may be left on the bandwagon.

"There are going to be spotty areas of strength in the market now but only if you are duly selective," he says. "We are going to start running out of favorable cases soon."

While federal tax breaks or national plans to encourage capital formation may also generate another spurt in the market, Mr. Harwood says that "very soon the undervalued will become fully prices and we'll hit the doldrums." That, he predicts, will occur by the end of the second quarter and could continue right through summer.

As the Dow Jones industrial average nosed toward the 900 figure last week, then faltered, few expected the market glee to last.

All the market activity indicates an overdose of speculation, says Barry Snowbarger, vice-president and branch manager in Los Angeles of the San Francisco-based discount broker Charles Schwab & Co.

"News like this develops, the administration says something, and people react ," he says. But this surge includes too many people. "And historically," he maintains, "crowds are wrong."