Whew! Just when it looked as if the INC. Index, with its exceptionally high "beta" (the ability to move faster -- in either direction -- than the norm) was going to need a foldout at the bottom of the page, along came as explosive a rally as Wall Street has seen in many a year. The August burst was sparked by the interest-predicting pronouncements of Salomon Bros.'s pundit Henry Kaufman, a one-voice stimulus, simply demonstrating that when the market wants to do something, it doesn't take much to send it on its way. This summer, the market wanted to go up. Business was bad, but it wasn't bad enough to send it to the DJl 500 level where some bears felt it might go; P/E ratios were getting well down into historic buying range; and, perhaps most important of all, such alternative investment areas as diamonds, fine art, and antiques had run their course. With interest rates threatening to ease, there was no other place to park excess capital.
What followed was described as panic buying, and those who witnessed it from the Street confirm that that was indeed the case. The panic came from two directions: institutions and short-coverers. Short positions were called to account midway through the first day's record-breaking advance, adding even more fuel to the rocket. But the main ingredient was the unusually high cash positions of institutions -- as much as 16% in uncommitted funds, according to one source. Afraid of being left embarrassingly behind by their more agile brethren, like drunks at a stag party, money managers were grabbing anything they could get their hands on. That is why such large-capitalization stocks as General Motors were so popular, and why so many of the INC.-style small-cap growth stocks were laggards. No institution would dare put out a market order on over-the-counter issues with their relatively thin markets. Money managers had to go for eighths or quarters per 10,000-share chunk. Most OTC stocks would have soared beyond reach of such underlying cupidity. But as things settled down, many growth issues began to catch up. In the end, as can be seen in the accompanying table, the INC. Index regained proportionately more ground than its fellow averages. This suggests that if a bull market is to emerge -- and as of this writing there is still no evidence that the spurt was anything but a bear market rally a la September-October 1973 -- it will include, and may even be led by, a throng of growth stocks.
This month INC. includes the Hambrecht & Quist Technology Stock Index in its tables. The new market average was devised by the San Francisco investment banking firm and introduced this summer. It comprises 107 mostly small technology companies, many of which were brought public by H&Q. Like the INC. Index, it gives equal statistical "weight" to each issue. INC. welcomes H&Q to friendly and potentially interesting competition with its 100 leading growth companies.
Also starting this month, INC. will invest a hypothetical $100 in each new issue as offered per above. See graph at left for collective results.