Stocks turn bulls into sprinters. Passing 1,500 on the Dow signals widespread optimism

The magical 1,500 mark. For years it was something only wild-eyed optimists would predict for the stock market. Now century marks appear to be little more than signposts for the fastest-charging bull market in history.

This week, in one of the biggest buying sprees ever, investors shoved the Dow above 1,500. Although the market was not faring as well yesterday, the runup still represents a vote of confidence in the United States economy.

Unlike the predictions of many economists, this vote has the hard-earned dollars of individual and institutional investors behind it.

The latest stampede -- in a bull market now running for more than three years -- was triggered by a string of events that could boost the economy in 1986:

Open market interest rates have declined in recent days. If you have money in a certificate of deposit or a NOW account, you are getting less than a few years back; the dividends and the price growth of stocks look more attractive.

Congress appears moving to rein in the budget deficit, thus easing credit conditions (since the US Treasury would be borrowing somewhat less money) and perhaps improving American exports.

Legislation designed to achieve a balanced budget by 1991 was approved by the House and Senate late Wednesday, and President Reagan signed it yesterday.

Falling oil prices help dampen inflation, allow the Federal Reserve to continue to pump money into the economy, and make the long-term interest rate outlook favorable.

The continuing merger wave in corporate America is sopping up shares of stock on the market at a time when the appeal of equities has grown tremendously. With more money chasing fewer shares, prices rise.

In the end, 1,500, like 1,499, is just a number. But it does show how far the Dow has come since the bull market began in the summer of 1982. It has risen 85 percent since then.

That's a significant financial cushion, at least on paper, for the 1 in every 5 Americans who owns stocks. But the benefits of this rally extend beyond stockholders.

For millions more people, the jump in stock and bond prices is bumping up the value of retirement funds. And for businesses, a booming stock market makes it easier to raise money to buy new equipment, expand, and create new jobs.

Yet investors are wondering: How long will this rally last? Or as Helen Meussner of the Delaware Valley Investment Club puts it: ``Do we take our profits or let it ride?''

Many of Wall Street's finest seem to think there is still some oomph left in this bull.

``The market is still heading upward with no sign of an important top,'' assures E. F. Hutton & Co. market analyst Newton Zinder.

And Merrill Lynch & Co.'s chief analyst, Robert Farrell, says, ``There still may be further gains in the market before year-end, perhaps into early January.''

But Mr. Farrell sees a pause ahead, a ``letdown in the first quarter.'' By spring, he thinks, the rally may resume. ``We may get over 1,600, I don't know. But I expect the first half of the year to be better than the second half.''

Until now, the consensus of economists has been that by late 1986 or early '87 a recession might occur. A slide in the stock market late next year would be in accordance with a rule of thumb that says the market leads the economy by about six months.

If the rally continues, economists will no doubt revise their outlooks.

But there's another nagging concern: The stock market and the economy have had a longer than average period of prosperity. They seem due for a downturn.

Some analysts, such as Michael Metz of Oppenheimer & Co., say the latest stock market rise has little to do with where the economy is headed. Yes, lower oil prices, optimism over the passage of a balanced budget bill, and falling interest rates are contributors.

But Mr. Metz says the primary and ongoing fuel for the bull market is merger mania. General Electric's buyout of RCA and GAF's intention to purchase Union Carbide are ready examples of the trend.

When one company acquires another, it obtains the stock from shareholders and retires it. This reduces the total amount of stock. This year's blitz of mergers and stock buy-back programs has cut the number of stocks available by as much as 10 percent, says Mr. Zinder at E. F. Hutton.

He says that a big merger ``gives the former stockholder cash for new equity purchases. So in effect, mergers reduce the supply of stock and add to the demand.''

Surpassing the 1,500 mark has generated a lot of excitement, but not the excessive speculation that indicates the rally is peaking.

There are enough cautious individual investors like Thomas Hall of Boston, who plans to take ``some profits'' now but hold onto his blue chips -- Exxon, IBM, Allied-Signal -- at least until this rally plays itself out. 30--{et