Fearless Investors Fuel Market’s Surge Buying Spree Continues Despite Disquieting News

Political drama is a big hit with investors. While America’s president and Congress argue peevishly over the nation’s finances and about who sat where on Air Force One, bond and stock prices soar.

The Dow Jones industrial average closed at 4,969.36 Thursday, within one good day of 5,000 and 99 points above last Friday’s closing price of 4,870.37.

Investors on a weeklong buying spree have ignored the government’s financial paralysis and new evidence of weakness in the U.S. economy.

Why?

First, stock buyers don’t believe President Clinton and the Republican leaders of Congress really plan to keep the government shut down long while haggling over a budget.

The politicians are “arguing over nickels and dimes, but they’re in agreement on the big-dollar amounts,” said Mark Anderson, who oversees $600 million of fixed-income securities at Renaissance Investment Management in Cincinnati.

As bonds rose, bringing long-term yields down, investors began to hope that the Federal Reserve would cut short-term interest rates soon by lowering the rate charged on overnight loans among banks. But stocks continued to rise after the Fed met Wednesday without lowering interest rates.

Mergers, real and imagined, also continue to support stock prices. The latest big transaction, said people close to the negotiations, may involve Boeing Co. and McDonnell Douglas Corp., which both make commercial airplanes and do defense work.

It didn’t hurt the markets when the name of Fed Chairman Alan Greenspan - seen by investors as the model of fiscal sanity - came up Thursday as a possible mediator of the budget dispute. Clinton spokesman Mike McCurry said someone at a budget meeting suggested that but added that he didn’t know if the suggestion was serious.

It could be, of course, that the stock market in particular is so strong that it just keeps rising regardless of outside influences.

Since Oct. 11, 1990, the Dow Jones average has climbed 108 percent without ever dropping more than 10 percent, according to Birinyi Associates Inc. of Greenwich, Conn.

Even the most optimistic forecasters have marveled at how far and fast the Dow average has come, more than 29 percent this year.

“You have a lot of money in this market, a lot of money from around the world,” said Yale Hirsch, a market historian in Old Tappan, N.J., who publishes the Stock Trader’s Almanac. “You have this mesmerizing momentum.”

Hirsch, who last December predicted the Dow average would finish 1995 at 4,500, said he foresaw more strength in the market even in the face of the deadlocked budget brawl between the White House and Congress, accounting footwork by the Treasury to avoid default, and signs of a slowing economy.

“If the situation in Washington were really that serious, you’d see the market down 200 points,” he said.

Edward Yardeni, chief economist at the C.J. Lawrence Inc. investment firm in New York, said he believed the Dow average would reach 10,000 by the turn of the century.

Even if the market retreats, Yardeni said in a weekly advisory to investors, “the correction I expect to see over the next few months should create plenty of opportunities to buy good stocks at lower prices before the next big move to the upside.”

The Dow average doesn’t always reflect the broader health of the market. But it’s the best-known and oldest barometer of stock values, first published in 1884 in the precursor to The Wall Street Journal.

After languishing through 1994, the average has risen more than 1,100 points since the beginning of this year and traversed 4,000 for the first time Feb. 23.