While many elaborate explanations have been offered for the stock market boom on Wall Street, some analysts say it's a simple matter of supply and demand.
Stock prices have risen steadily, they assert, because the pressure of demand to buy stocks - through such channels as mutual funds and corporate buybacks - is greater than the supply of stock coming into the market for sale.As every student of first-year economics recalls, prices are supposed to serve as a mechanism that balances the supply of and demand for any item that can be bought and sold.
In the case of stocks in 1995, analysts say the market has continued rising because demand has remained strong, despite a 20 to 30 percent increase in stock prices, while the supply hasn't increased accordingly - at least not yet.
This kind of situation is sometimes spoken of as "more buyers than sellers" - although that, presumably, is a physical impossibility since both sides must be equally represented in every trade.
"More demand than supply" works better. One prime source of current demand, by all accounts, is stock mutual funds, whose assets have just reached the $1 trillion mark, almost double where they stood just 21/2 years ago.
Over the last few months, net inflows from investors into stock funds have been running at better than $8 billion a month.
Corporations, meanwhile, have been busily buying back chunks of their stock, often as a less taxing alternative to paying cash dividends. Money paid out as dividends is taxed as corporate earnings and again as income to the shareholders who receive it.
Companies, of course, are the prime source of supply of new stock. They create stock in a variety of ways - including initial public offerings by companies just "going public," and secondary offerings by companies that already have stock that is publicly traded.
The level of secondaries lately has been "on the high and dangerous side," says Stan Weinstein in his investment advisory letter The Professional Tape Reader.
First-time offerings, known on the Street as IPOs, have been relatively quiet, however. Standard & Poor's Corp. counted 177 in the first half of this year, down 40 percent from the 295 it tallied in the comparable period of 1994.
As tidy as analysis of supply and demand forces may seem, it has its limits as a way to try to make sense of what the market is doing and predict where it might move next.
Many analysts do agree that the surge of money into stock mutual funds seems to reflect a new urgency to save and invest, particularly among members of the baby boom generation born after World War II and now staring age 50 in the face.
"Most people simply are not saving enough to be able to retire at 65 and live close to the lifestyle they have become accustomed to living," says Stanton Feeley, chief investment officer at SunAmerica Asset Management, a money manager with $2.5 billion in assets.
"The savings rate has recently moved up, but will go substantially higher by the end of the decade."
But the supply and demand forces that influence the stock market can get very complicated. Who's to say, for instance, that Americans buying domestic stocks today might not shift their sights to overseas stocks tomorrow, through international and global funds?
It's certainly logical to expect that the pace of IPOs from domestic companies will pick up sooner or later, given the prices they can fetch in an exuberant marketplace.
"The backdrop could not be more favorable than for equities right now," says Feeley. "However, we all know there must be a caveat to this perfect scenario.
"Everyone now recognizes what we are discussing, and the markets have reflected this enthusiasm for the past eight months. Therefore, it is only natural that we will have some kind of correction."