STAMPEDE RESUMES ON WALL STREET; BULL MARKET REVIVAL LIFTS DOW, S&P TO NEW HIGHS.

Byline: Gretchen Morgenson The New York Times

Glee shoved gloom aside Monday in the nation's stock markets as two of the main gauges surpassed their summer peaks and reached new highs.

Investors who stayed with stocks through the downturn in the fall now have outsized gains for the year, even by standards set in this bull market's last few years. The Dow Jones industrial average, which set a record Monday, is up 18.54 percent for the year, while the Standard & Poor's 500-stock index, also a record-setter Monday, has risen 22.44 percent. Although the technology-heavy Nasdaq composite index did not hit a record Monday, it has beaten the other gauges for the year, up 25.92 percent.

Still, the recent rally has not lifted all issues. Small stocks, while back from the depths, are still underperforming their larger brethren. The Russell 2000 index of smaller-company issues closed at 398.15, up 28 percent from its low in October. But it is still 14 percent below its July peak.

Monday, the Dow rose 214.72 points, or 2.34 percent, to 9,374.27. The Nasdaq index jumped 2.55 percent, to 1,977.42, up 49.21 points. The S&P 500 rose 2.12 percent, or 24.66 points, to 1,188.21.

This performance represents nothing short of a U-turn in investor sentiment. Euphoria is back for stocks, but confidence also has returned to the junk bond arena, fueling a recovery in those securities from a moribund state two months ago.

``We've gone through a classic market cycle in a matter of weeks instead of the months or even years that it used to take,'' said John Manley, equity strategist at Salomon Smith Barney.

Although concerns remain, such as a continuing deterioration in corporate earnings, an Asia mired in overcapacity, uncertainty about Japan's recovery plan and Latin America on the edge, Manley said investors were focusing on something rosy farther down the road.

Optimism also has checked into corporate board rooms, as evidenced by Monday's spate of merger announcements. Nine deals were announced or under negotiation Monday for a total of $40.4 billion, reflecting a belief among many chief executives that a recession is unlikely next year.

Merger experts also found it bullish that the companies doing the deals spanned a range of industries. That most of the deals were done using stock as the acquisition currency indicates how crucial the recent rally has been to deal-makers.

Because consumer confidence is inextricably linked to the stock market's performance, the recent run-up in stocks should bolster consumer confidence figures, which will be released today. These numbers had been falling in recent months along with stocks.

The stock market's impressive rally is vindication for Abby Joseph Cohen, the market strategist at Goldman, Sachs & Co., who stayed positive on stocks throughout the downturn. Cohen never bought the doomsayers' view, what she called FUDD - for fear, uncertainty, doubt and despair. Instead, she held fast to her view that turmoil in world markets was unlikely to cause a recession in the United States. Cohen looked particularly prescient Monday: Her prediction on the Dow Jones industrial average for the end of the year was about 9,300.

But while investors who own mutual funds that mimic the stock indexes are enjoying big gains, many others are probably feeling left behind. That is because the surge that shows up in the market indexes is, once again, not showing up across the board, with many stocks still well off their peaks.

Indeed, the broad market is only beginning to claw its way back. According to Salomon Smith Barney, at the starting point of this market surge, on Oct. 8, the average Nasdaq stock was down 54.1 percent and the average S&P 500 stock had declined 32.1 percent from their 52-week highs. As of Friday, the most recent data available, the average Nasdaq stock was down 40.1 percent and the average S&P 500 stock was down 19.2 percent.

Similarly, while the revival of mergers and acquisitions is an indicator of optimism, the activity is still far below the levels reached earlier this year. Monday's $40.4 billion in deals brings the pace this month to $70 billion. That is up from the low of $51 billion in September, according to Securities Data Corp., but nowhere near the spring's levels of $210 billion a month.

Initial public offerings are showing life, too. But a couple of spectacular one-day gainers hide the fact that many recent offerings still are hurting. So far in 1998, the average initial offering has inched up only one-tenth of a percent. But separating technology offerings from nontechnology ones exposes a chasm in performance. According to Securities Data, the average technology offering is up 15.2 percent this year, while the average nontechnology offering is down 8 percent.

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