WALL STREET: Too Many Bears?

Seldom had Wall Street been so full of bears as it was last week, after the stock market had been pounded by its second week of sharp price drops. Some of the bears were old familiar fellows, such as Broker John H. Lewis, one of the few prophets who correctly foretold the onset of the 1946 bear market (which lasted until 1949), and who has been growling gloomily ever since. But there were also plenty of ex-bulls behind the trees. Everybody was asking: Has the great, postwar bull market finally come to an end?

Slowpoke. What set off the wondering was a series of jolts which took as much as six points off Denver & Rio Grande and Amerada Petroleum, knocked the Dow-Jones industrial average down more than six points to 265.74, within a whisker of its 1953 low of 262.88 in June. But even more worrisome was the fact that railroad stocks, which had been leading the market until recently, actually broke through their year’s low. To the dwindling band of Wall Street theorists who still follow the so-called Dow Theory, that was an alarm signal. If the industrial index should also break through its 1953 low, that would be a “confirmation”—the official signal that a bear market had begun. This week the signal came—on opening day, the industrials plunged another 4.52 points and broke through the old lows to close at 261.22.

One veteran trader thought the Dow-Jones index was a slowpoke compared to what many individual groups of stocks had already done. Said E. F. Hutton’s Gerald M. Loeb: “The bull market really ended quite a while ago as far as the majority of stocks is concerned.” He pointed out that gold stocks as a group have never topped their peak of November 1949. The soft drink and brewing group reached its high in January 1950; a year later, copper stocks, retail stores and steels reached theirs. Two years ago the ethical drug stocks reached their top, followed within a few months by such groups as agricultural machinery, mining and smelting, distillers, lead and zinc, and textiles. Thus, all these turndowns had come long before the 30 Dow-Jones industrials reached their peak of 293.79 last January.

Switch-Over. Actually, the postwar market had been like a series of ocean swells, in which first one group, then another, rolled up its highs, only to be replaced by some new candidate for leadership. Investment trusts, for instance, which have been switching out of such stocks as autos, steels, rails and farm equipment—those most vulnerable to any recession—have been going in for utilities, foods, tobaccos. And the fact that some investment trusts were buying the stock of personal loan companies bore out the fact that changing conditions always bring new opportunities in the market, such as the bank stocks’ benefiting by the Government’s higher-interest policy.

Was the market bound still lower? It had plenty of room to fall. The Dow-Jones industrials could lose almost 50 points and still be higher than the 212.50 level from which the 1946 market began its decline. But the outlook for profits and dividends gave little solid reason for a major shakeout. By all indications, 1953’s profits will be at least 10% higher than 1952’s. Next year, with the Excess Profits Tax removed, many companies will be able to earn more on lower sales. And the fact that there are so many bears might be an argument that they are wrong—as the old Wall Street axiom has it: “Go the way the crowd came from.”