WALL STREET: Historic Week

For Wall Street it was the most hectic week in years. The stock market, which has been sliding gradually downhill for three months, suddenly nose-dived and opened the week with the biggest one-day break since 1955. The Dow-Jones industrial average plummeted ten points to 423.06, lowest level since May 1955. Every major group took a beating in the slump, with drops in such stocks as Du Pont, American Telephone & Telegraph, Bethlehem Steel, Goodyear, Alcoa and all but three of the 25 rails.

Much of the selling was in odd lots (less than 100 shares) from all across the U.S., and stocks were dumped at any price in a flurry of panicky selling by small investors, often in direct contradiction to the economic facts. The market rout was also aided by professional short selling, and forced sales to meet margin calls from brokers (though such calls went out to only about 5% of margin accounts).

Wall Street professionals blamed the selling spree on a whole catalogue of uncertainties: worries about the state of the defense program, trouble in the Middle East, fears that the Federal Reserve’s tight-money policy might be triggering a recession. “Business is not that bad,” said James Crane Kellogg III, chairman of the Board of Governors of the New York Stock Exchange. “As a matter of fact, it’s good.” The facts showed that business, moving at historically high levels, was indeed far better (see below) than business sentiment. Yet Wall Street, which likes to talk of the investor’s lack of knowledge, could blame itself for much of the gloom. From brokerage offices have poured forth a flood of market letters, rumors and reports that painted the current economic picture in unwarrantedly pessimistic colors.

But to some investors the big sell off of the early week was just the chance they had been waiting for. As the fainthearted beat down prices, they moved in for the rebound. Some confidence was also gained by President Eisenhower’s decision to make a series of speeches on U.S. strength and by hints of a possible easing in the Fed’s restrictive policies. Up shot the market at midweek in the sharpest single day’s point gain since 1929, recouping the losses of the two previous days.

The market held its own Thursday, overcame an early selling surge Friday to close at 435.15. For the first time since January 1955, the market had experienced four 4,000,000-plus volume days. Despite the attrition of the early week, its aggregate value rose about $1.2 billion for the week, and the Dow-Jones average gained 1.32 points. Significantly, institutional buyers and mutual funds held fast during the market’s gyrations, steadily bought up stocks—often at bargain prices.

As to where the market would go next, few were hazarding a guess. Members of the Commerce Department’s Business Advisory Council, meeting in Hot Springs, Va. with Secretary of Commerce Sinclair Weeks, foresaw a lull in business expansion, but predicted that business will continue at a high plateau through most of 1958, though it might slip 1% or 2%. Plainly, the stock market, influenced by Wall Street’s pessimism about the business scene, has already discounted a much bigger drop in business than any economist or businessman could foresee.