Combination of Forces Increases Demand, Reduces Stock Supply

Article excerpt

NEW YORK - As they seek to explain the baffling boom that has taken place lately in the stock market, some analysts are turning to some very basic concepts: Supply and demand.

The point may seem so obvious as to be no explanation at all. But as long-time students of the market point out, it isn't economic statistics or political decisions that cause stock prices to change.

They rise when demand increases, supply decreases, or both. And right now, these analysts maintain, a combination of forces appears to have increased demand for, and reduced the supply of, common stocks.

On the supply side, they say, takeover and buyout activity over the past couple of years has resulted in a shrinkage of the amount of stock available for public trading.

The question of demand is more complicated. Much of technical analysis, as practiced by countless followers of the market in countless ways, is devoted to trying to measure past, present and futuredemand for stock.

Still, some analysts say, an important shift appears to have occurred in the factors that determine demand for stocks, as opposed to other investment alternatives such as money-market securities, real estate and tangible assets.

With the decline of inflation and interest rates, the returns investors have realized in many non-stock investors have diminished. Even if only by default, that tends to enchance the appeal of stocks.

""The transition from the days when investors opted for tangibles such as real estate, collectibles, antiques, precious metals and high-return savings over equities has gone unnoticed to many,'' says Yale Hirsch, an Old Tappan, N.J., financial adviser who contends that a ""green tide'' of investment money is flowing into the stock market.

""Now it's dawning on investors that this could be one of the grandest bull markets of them all. …