The parable of the stock-market bather

Consider the stock market today. Or consider the parable of the tentative bather. This time of year, the seaside competes with such prosaic pursuits as investing. What's more, the behavior of many surf frolickers - especially those who frolic in the colder waters of the North Atlantic - parallels the behavior of many investors.

The water looks so good on a hot day. So does a stock market sloshing around near 1,100 on the Dow.

First a toe goes in the water. A bargain-hunting investor makes a purchase. Not so bad. The market forges ahead. Then a foot goes in. The investor's equity position is increased. But the water seems a little less comfortable than it looked. The Dow stalls.

Are those clouds on the horizon? Which way are interest rates going, anyway? Full retreat!

... Was that premature? It is pretty hot out on the sand. Maybe there are some bargains in the market.

And so it goes. The Dow Jones Industrial average's Friday close of 1109.87, down 12.70 points since June 6, marked another week of indecision - in the water and out of the water - on the part of the market. The Dow was at four-week low Thursday but closed up 5.30 points on Friday.

Among problem stocks last week were ITT, which surprised the market with a cut in its dividend, and stocks in the already battered high-tech sector - which was hurt by an industry survey showing that orders for electronic connectors and semiconductors have declined. With a string of important second-quarter earnings reports due this week there could be more surprises. Not all of them may be bad, however, given the strength of the economy: Market-leading IBM reported Friday that its quarterly earnings increased 20.8 percent.

As so often in the past year, the future course of interest rates dominated the signals that investors are watching to get a clue as to how to invest. Rates appeared to be easing back last week, with the Federal Reserve's money-supply report down $1.6 billion and most indicators showing the supply within the bank's target range for the year.

The bond market rallied on the news late in the week. With the money supply under control and inflation still negligible (the June producer price index, issued Friday, logged zero change, as it had the previous two months), there seems little reason to suspect the Fed will tighten credit when the Federal Open Market Committee meets this week to plan credit policy.

Back at the seaside, a number of investment advisers counsel cautious buying of high-yield bonds and high-quality stocks if you are going for long-term gains. The market, by the standards of the past 30 years, seems far from overvalued, given the strength of the economy (June retail sales were up 0.8 percent percent and industrial production, led by the auto sector, was up 0.5 percent), the purchasing power of consumers, and the corporate profits that can be expected to result.

For the past few weeks, as many investment savants have argued for a late-blooming summer rally as have predicted it would wilt on the vine. But today, with the Dow continuing to flirt with its low for the year, bullish voices seem to be getting stronger.

The water is fine in the stock market, says John D. Attalienti, director of research for the independent Argus Research Corporation of New York.

''We feel strongly that this is the time individual investors should buy,'' Mr. Attalienti says.

The market, he reckons, will be substantially higher in the next two to three months, and he goes so far as to call it ''the second leg of the bull market.'' He recommends that individual investors move into equities now and not, as in the first leg of the bull market, wait until institutions have bid things up.

Attalienti bases his optimism on a belief that interest rates will ease and corporate profits will continue to look strong. He especially favors secondary stocks as having the most potential for appreciation, since they have been hardest hit in the past year.

''It's clear,'' he says, ''that there's not too much to fear.''

The bond market is enticing, too, says George W. Jacobsen of the New York portfolio management firm of Trevor, Stewart, Burton & Jacobsen.

''We are very bullish on bonds,'' Mr. Jacobsen says. ''Inflation has been clobbered for a while into the future. It (disinflation) is more than a cyclical phenomenon. Interest rates are improving every day.''

Jacobsen notes that in this kind of environment, long-term government bonds at 13+ percent offer outstanding returns. Even if you don't trust that inflation will remain low for 25 years, during the next two or three years these bonds will perform very well. A 25-year 13 percent bond will bring in a total return of 30 percent if interest rates drop only 2 percent.

Bullish - but slightly more cautious - is David M. Polen, head of his namesake New York money management firm. Mr. Polen notes that the ''technical condition of the stock market is such that a major rise in stock prices above the 1983 highs would develop once interest rates decline significantly.'' He bases this on the large cash positions that have accumulated since the stock market began to stagnate one year ago.

Now, Polen recommends a ''defensive posture'' of 50 percent cash and 50 percent or less in equities.

So there, for your seaside consideration, you have it. Put a foot in the water and a foot in the sand. Or plunge in, if you are brave. Otherwise, you can sit on the beach and read a few more Wall Street columns before you decide. But summer may be over by then.

Interest rates Percent Prime rate 13.00 Discount rate 9.00 Federal funds 11.25 3-Mo. Treasury bills 9.90 6-Mo. Treasury bills 10.40 7-Yr. Treasury notes 13.21 30-Yr. Treasury bonds 13.04