Inflation skyrocketed all year. Interest rates soared. The dollar declined. Gold prices rose. The economy weakened. The oil producers threatened.
Investors shrugged off all the bad news.
But they could not shrug off the Federal Reserve Board.
When the Fed announced a week ago Saturday that it would take its first serious step to restrict the amount of credit available to banks and concentrate on restraining the growth of money, panic ensued.
The Dow Jones Industrial Average closed at its highest level of the year the day before the Fed's Oct. 6 action. Today, it closed higher for the first time since then, but the average is still more than 65 points lower than it was on Oct. 5.
While stocks are still among the cheapest investments around and the market seems to have stabilized in recent days, two continuing repercussions of the Fed's action will make the stock market a risky crapshoot for some time:
Many investors bought stocks on credit this year. When stock prices were rising faster than interest rates, most investors were satisfied.Now that interest rates are sharply higher and stock prices sharply lower, investors may be less inclined to borrow to buy stocks and sell them instead.
Many major banks are taking steps to curtail their lending to companies who need the loans to finance acquisitions of other companies. The merger boom in recent years has been an important factor in rising stock prices, as companies paid a lot of money to investors who held stock in acquisition candidates.
If the Federal reserve is successful in its quest to fight inflation and hold down money growth, investors in stocks and bonds will benefit. But until some tangible results of the new Fed policies are evident -- and until the economy sorts out whether it is in a recession and whether that recession will be serious -- most professional advisers are telling their investment clients to be chary.
Brokers who are members of the New York Stock Exchange have extended their customers $12 billion worth of credit, through what are called margin loans.
When a customer buys a stock he is permitted to borrow up to half of the stock from his broker. If he buys $20,000 worth of stocks, he can borrow up to $10,000 from his broker through the margin account.
The loans are not free, of course. At many brokerage houses the difference between red ink and black ink is the profits made on margin loans. With brokerage houses now paying banks 14 1/2 percent for the money they reloan to customers, many investors find themselves paying 16 percent or more for the privilege of owning stocks on credit.
Already many small investors have sold off some of their stock to reduce their broker indebtedness. "We've had a good deal of voluntary liquidation" of margin accounts, according to Robert Linton, chairman of Drexel Burnham Lambert. "People are voluntarily selling securities to cut back on their loans."
Robert Farrell, chief analyst for Merrill Lynch, Pierce, Fenner and Smith said further stock selling by margin traders could be in the offing.
If that occurs, there will be further downward pressure on stock prices in the weeks and months to come. Investors may hang around for a week or two to see if the market rebounds and if it does not, may decide to take what profits they have and get out, according to another analyst.
At the very least, according to Salomon Brothers analyst Robert J. Salomon Jr., investors will be less likely to buy stocks on margin -- which means there will be fewer stock buyers.
"And more likely," he said, "in this hostile environment, the potential exists for a $5 to $8 billion of liquidation" of margin debt.
While that is a far cry from the $700 billion the stocks trading on the New York Stock Exchange are worth, it would also be a big contribution to lower prices in the future.
A turnaround in the market, even if the Dow does not recover to the 897 level it reached Oct. 5, would calm some anxious margin investors and lessen the chances for further severe declines.
If acquisition-minded companies slow down their purchases -- either because of bank reluctance to finance takeovers or because the high cost and low availability of credit cuts down acquisition activity -- the impact on the stock market will be both psychological and real.
If there is a decided slowdown in takeover activity, stock prices in general will feel the pinch.
None of this is to say that the market is due for another 65-point plunge.
But investors must be careful in the next month or two.