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The Magic Number on Wall Street: 1,300

February 23, 1985

NEW YORK (AP) _ As stock prices have leveled off in the past couple of weeks, Wall Street has been confronted once again with talk of a ″psychological barrier″ in the market’s path.

The wall is presumed to stand at the 1,300 level in the Dow Jones industrial average - a point at which the market’s early-1985 rally has stalled three times since late last month.

Some money managers at investing institutions, it is said, have picked that round number as an automatic reference point to do some preplanned selling.

If enough market participants subscribe to the view that the market will have trouble getting past Dow 1,300, then their belief can become self- fulfilling.

In the 1970s, the 1,000 level in the average was often considered a major obstacle blocking the market’s progress. Indeed, it took more than a decade from the time the average first reached that point to launch a major rally beyond it.

But analysts like Anthony Tabell at Delafield, Harvey, Tabell Inc. in Princeton, N.J., say the significance of round numbers in a single gauge like the Dow can be greatly exaggerated.

″The market strength which has characterized 1985 to date has engendered the usual discussion regarding the possibility of a correction,″ Tabell observed.

″There is no particular rational reason why this should be so, any more than there is a reason why the market should tend to hesitate when the DJIA approaches a figure which ends in two zeros. Nonetheless, the tendency exists.″

It certainly seemed to exist in the past week, when the Dow Jones industrials drifted in a narrow range and trading volume slowed. For the week, the average posted a net drop of 6.18, closing Friday at 1,275.84.

The New York Stock Exchange composite index lost 1.26 to 104.01, and the American Stock Exchange market value index was down 2.07 at 226.10.

Big Board volume averaged 101.58 million shares a day, down from 120.76 million the week before.

If the market was indeed suffering from ″unlucky 1300″ fears, it had a ready excuse - an abrupt reversal of the recent decline of interest rates in the credit markets.

When Paul Volcker, chairman of the Federal Reserve, told a Senate committee on Wednesday that the Fed had stopped easing credit conditions, interest rates quickly jumped.

A day later, when the government reported that the economy grew more rapidly in the fourth quarter of last year than had previously been estimated, rates climbed again.

Fears of a recession have been almost completely dispelled, with the official inflation-adjusted annual growth rate of the gross national product for the fourth quarter of 1984 now put at 4.9 percent.

However, the reasoning goes, if the Fed has stopped worrying about a slowdown in economic activity, it just might turn its attention back to guarding against a revival of inflation.

Volcker said the Fed isn’t tightening credit, just proceeding ″a bit more cautiously.″ But that was enough to stir up fears that the decline of interest rates since last summer was just about over.

Charles LaLoggia, a Rochester, N.Y.-based investment adviser, diagnoses Wall Street’s main problem as ″anhedonia - an inability to experience pleasure.″

″It seems to me that many economists and market observers are experiencing anhedonia these days,″ LaLoggia says in the latest issue of his Special Situation Report.

″Every upward blip in interest rates becomes a signal that the Fed is moving toward tight money again. Every minor rally in the commodity markets becomes ‘evidence’ that inflation is heating up again.

″The trouble with the economic worry-warts is that they have no sense of history. If they had, they would realize that incredible long-term bull markets are the rule of thumb during periods in which inflation and interest rates level off following a sharp rise.″

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