Rest & Readjustment

After 18 months of soaring rise, the stock market has been moving lower for four straight weeks. From a July peak of 471.73 on the Dow-Jones average, industrial stocks on the New York Stock Exchange eased downward day after day. Railroad stocks, which broke through to a new high of 164.59 in mid-June, followed the pattern. So did utilities. By last week Dow-Jones industrials were at 453.57, down about 20 points; rails were off ten points, to 154.99; utilities at 65.34. The volume of selling was only half the 3,000,000-share daily peak of mid-July. Inevitably, the question sprang up: Is the bull market over?

Wall Street's answer to the question was a firm no. For years, the stock market has followed, rather than led, the U.S. economy. And like everything else, the market is beginning to feel the effects of the U.S. Government's concern over inflation (TIME, Aug. 15). Just as the Federal Reserve tightened interest rates, as the Veterans Administration and FHA eased up on housing credit, so businessmen and investors were slowing the market.

It was a period of rest and readjustment. Despite glowing mid-year earning reports, a substantial number of companies decided to put off predicted stock splits or dividend boosts. Such market leaders as Bethlehem Steel (145), IBM (404), Standard Oil of New Jersey (132), DuPont (218), all decided to wait before splitting. The first effects came from speculators who, by buying heavily, had helped push prices up, then pushed them down fast when they sold out.

More important, in a tightening market, the fire-and life-insurance companies and other big institutional investors were beginning to ease off their stock-buying programs and were putting more money into bonds. With blue-chip stocks at record levels, many companies were paying dividends amounting to only 3% of their stock purchase price: thus, high-yield 4% bonds became more attractive investments. Furthermore, the recent credit restrictions made individual investors think twice before going deeper into the market.

The retreat was both gradual and graceful. Few stocks slumped sharply, and there was virtually no alarm selling. Most of Wall Street saw the leveling off as merely part of a general easing of the U.S. economy. If anything, Wall Street was relieved: had stocks continued their giddy rise, Washington's increasing concern over inflation might have brought more stringent curbs on credit for the economy in general. As it was. the market was making its own moderate adjustment.

This file is automatically generated by a robot program, so reader's discretion is required.