That year-end rally may be averted by longer-range doubt

The economic news is good - perhaps better than it has been in five years. So why isn't the stock market going through the ceiling? Just a couple of weeks ago, in anticipation of a traditional year-end market rally, many Wall Street-watchers were highly optimistic. But that year-end rally has had a difficult time coming. Early last week the Dow Jones industrial average did streak to a record high, but the next day it streaked back down, and then rocked along accomplishing little, before dropping almost 10 points on Friday. The market closed with the Dow Jones at 1,265.24, down 12.20 points for the week.

Economic reports, meanwhile, continued to indicate a strong recovery/expansion is taking place. The Commerce Department's index of leading indicators rose 0.8 percent in October, the 14th gain in a row. Christmas-season retail sales were running at a five-year high. The unemployment rate, which many analysts had expected to creep up, fell to 8.4 percent in November from 8.8 percent the month before.

Good news, yes. But this was news that many investors had already taken into account. There has been a built-in premium in stock prices the past few months which reflects this general optimism.

''I would not look at current economic indicators as exceptional for what the market is doing now,'' says Anthony W. Tabell, managing director of the Delafield, Harvey, & Tabell brokerage of Princeton, N.J. ''They (the indicators) say what the market did six months ago.''

Mr. Tabell explains that many investments the past 14 months were predicated on a belief the economy was going to improve and have long since paid off in higher dividends and stock prices.

Today's investors are not looking at how the economy is doing now but rather at how it might be doing six months or a year hence. Short-term interest rates are being scrutinized, and investors are watching the Federal Reserve's weekly money supply figures to attempt to divine whether credit has been tightened or loosened.

So what is the market doing now, and what will it do in the next six months? Opinions vary, but it does seem that the year-end glow goes rather dim six months up the road. The government deficit, inflation, and interestuffeajump,15 pWALL ST.WALL ST.ufmrk,81l

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rates are causing concern.

At the New York brokerage of Smith Barney, Harris Upham, technical analyst William E. Raftery sees the market as having ''fallen back into a directionless pattern.'' He is not highly optimistic about its strength in the next six months , though he thinks things could pick up by the second quarter of 1984. Instead of watching the market on its daily and weekly gyrations, he suggests constant examination of individual stocks on a case-by-case basis. Raftery monitors the performance of 1,800 stocks. The broad market, he stresses, is more important than the Dow Jones sampling of 30 stocks in the market.

''Remember, it took the bull 14 months to get here,'' Raftery says. ''The market runs up in anticipation of good news and then reacts only if the news is much better (or much worse) than anticipated. So far we're hitting par on the economic news.''

Mr. Tabell says he is ''modestly bullish'' but expects to grow increasingly conservative after the first of the year, ''especially after April.''

This apprehensiveness was best expressed late last month by Henry Kaufman of Salomon Brothers: ''How wonderful it would be if the US economy could be suspended in the current phase of the business recovery . . . . Economic life, however, is not constant: the vitality changes. The interplay between current and emerging forces will alter the agreeable character of the economic recovery in the year ahead. Already there are telltale signs.''

In fact, the good news today could cause problems six months from now, Mr. Kaufman said. Lower unemployment and higher utilization of factory capacity ''is bound to apply additional pressure on both wages and prices.'' That could lead to inflation and higher interest rates, and that could cause economic problems.

Larry Wachtel of Prudential-Bache notes that today's stocks ''are not cheap, '' having been bid up by $800 billion since August of '82. Moreover, interest rates, if perhaps not increasing, are not declining, and that is hurting such economic powerhouses as automobiles, housing, and capital spending. The economic momentum that is reflected in today's good news, he says, mostly amounts to consumer spending.

Wachtel says the big news of mid-1984 may be that high government deficits cause the much-feared ''credit crunch.'' Anticipation of good news sparked the rally; anticipation of bad could deflate it. That may be why year-end ebullience on Wall Street is growing weary.