NEW YORK -- the great bull market of the 1980s -- alternately prayed for and predicted by most Wall Street executives -- may have checked in quietly, and early, under the name 1979.
While headlines prattled about he dazzing rise in gold and silver prices, the tempting yields on money market mutual funds and the giddying profits to be made on investments as diverse as commodity futures and art, common setocks quietly turned in one of their best performances in years.
Despite a stagnant fourth quarter -- when financial markets were buffeted first by the Federal Reserve's tough new monetary policy and then by the Iranian crisis, oil prices increases and the Soviet invasion of Afghanistan -- the value of the average share of stock on the New York Stock exchange rose 25.7 percent, according to Interactive Data Corp., A financial services firm.
Stock prices on the American Stock Exchange and in the over-the-counter market did even better.
Public perception of the improvement in overall stock prices was clouded by the relatively dismal showing of the most popular measure of stock market performance, the Dow Jones industrial average, which rose only 4.19 percent over the year.
But one year, or even three-quarters of one, does not a long-term bull market make.
The key question is whether investors -- individuals as well as the increasingly important institutions -- will return to buying common stocks.
Many analysts, including institutinal money managers, think they will, although perhaps not with the singleminded fervor with which individual investors bought their "piece of America's growth" in the 1950s and 1960s.
And the predictions of a bull market for the 1980s might not be wishful thinking.
After two decades of steady growth, common stocks reached unsupportably high prices in the early part of the 1970s. But after nearly a decade of lassitude, the once over-valued common stocks are probably the most underpriced investment left.
"Stocks are cheap in relation to just about everything under the sun, including historical measures of price-earnings ratios, yields, other markets of the world and, notably, tangible assets," said Robert S. Salomon Jr. of the investment banking firm Salomon Brothers. For the price of an ounce of gold last week, an investor could have purchased 10 shares of International Business Machines Corp. For the price of a shanty on Capitol Hill, he easily could have purchased 1,500 shares of American Telephone & Telegraph Corp.
But, and herein lies te rub, cheap stocks by themselves do not a bull market make. Until high interest rates come down and investors absorb the inevitable corporate earnings declines that accompany the onset of a recession, the bull market may just have to stay in the wings.
Furthermore, unless investors believe that common stocks are a good investment vehicle, stock prices will remain "cheap".
Interest rates and recessions are short-term problems. Lack of investor faith in common stocks is a long-term problem.
With virtually risk-free corporate bonds yielding not much less than common stocks because of high interest rates, the institutional investors who ae so important to the overall performance of the stock market will continue to buy bonds.
"Stocks are cheap, but they can stay cheap for a long time," said Burton M. Siegel, director of research for Drexel Burnham Lambert Inc. "There hasn't been a bull market in 75 yeary without a secularly declining rate of inflation. Until inflation recedes, interest rates will stay high."
Interest rates have fallen slightly since their peaks of last October and November. The prime rate, which had climbed to 15 3/4 percent, now stands at between 15 percent and 15 1/4 percent.
Analysts look to a recesson in 1980 to ease demand and eventually begin to reduce the rate of inflation. But no one knows how much the double-digit price increases of 1979 will be slowed by a mild recession.
A severe worldwide slump, ala 1974-75, clearly would knock the inflation rate down -- and send interest rates tumbling, too. But even the last recession failed to reduce inflation as much as would have been expected.
And a severe recession brings with it sharp drops in corporate earnings. Depressed profits do little to encourage investors to buy a piece of corporate Ameria.
Nevertheless, recessions and interest rate declines are in the wings. It is merely a question of when.
The more optimistic analysts note that despite record-high interest rates in 1979, stocks performed well. Unless the Fed should find itself forced to make new tightening moves, stock prices might continue to move ahead in 1980 until the recession strikes hard.
Robert Farrell -- the chief market forecaster for Merrill Lynch, Pierce, Fenner & Smith who has had an uncanny record in recent years -- said that the market will climb smartly during the first half of 1980, then weaken later in the year as the recession shows up on corporate balance sheets.
"There we will begin the bull market of the 1980s," he predicted, "both from a business-cycle (short-term) perspective and a secular (long-term) perspective."
Farrell bases his prognosis on his analysis of the behavior of institutional managers and on the performance of the market itself for the last several years.
"The market is a conditioning process," Farrell said. "We're going through the typical cycle. Investors start off scared, holding a stock for, say, a quick 3-point ($3) gain. Then they look at what they could have made by holding on longer and next time hold on for 10 points. Pretty soon, investors stop trying to jump in and out for quick profits."
Each time in recent years that the stock market has taken a battering, it has recovered more quickly than the time before. That in itself suggests that investors are becoming less scared of equities than they were five years ago. Between 1970 and 1975, six million individuals stopped owning stock. Institutions, later on the bandwagon of the 1960s, were selling off their stock holdings in 1978. Now institutions are adding to their stock holding again.
Farrell said that the market so far has fooled the professional money managers who control hundreds of billions of dollars in investment funds for pensions, mutual funds and other big institutions.
"My basic premise in that the last major mistake by institutional managers was in 1972, when they overinvested in anovervalued market that then declined. Now they are underinvesting when the market is undervalued and is going up.
"There soon will be a significant recognition of 'missing something'," he said.
Already there is evidence that pension finds are putting money back into the stock market at a heady pace of about $10 billion a year in the last several months.
"There is a hard-core group of bears looking for one more downturn that is still holding on to its cash," Farrell said.
"But it's a crowd thing. We all want reinforcement. The longer the market goes down, the less willing we are to buy. The longer it goes up, the more willing we are. That's why emotion often has a greater impact than reason," Farrell said.
If Farrell is right, and he is a bit more optimistic than most of his compatriots, then the market is in or a long-term climb, not a short-term rally, some time in the next year to 18 months.
That is not only Farrell's analysis, it is the official position of Merrill Lynch, by far the nation's biggest securties firm, and of the New York Stock Exchange, by far the nation's most important equities trading floor.
But before cashing in your bonds and selling your house to buy stocks, remember two things: Merrill Lynch has led the brokerage industry in diversifying itself in order to be less dependent on stock commissions, and the New York Stock Exchange has invested $15 million to set up a new facility to trade financial futures.