WALL STREET: Black Monday

The swift rise of the 1955 bull market was based on one big premise: President Eisenhower would be elected for a second term in 1956 and the U.S. economic boom would continue, unhindered by any political changes. As the news of Ike’s heart attack shattered that confidence, the stock market suffered its worst fall in 26 years. For Wall Streeters the weekend announcement could not have come at a worse time, for the first impulse of thousands upon thousands of small stockholders was to sell. As the selling orders poured in by wire on Sunday to brokerage houses, the bearish pressure on the market built up to enormous strength. By 8:30 a.m. Monday, brokers who hustled into their offices earlier than usual found out how bad it was going to be. In London and Paris, where U.S. stocks are traded, the markets had opened weak a few hours earlier, with many U.S. stocks down as much as 10 points.

Gongs & Shouts. At the opening gong at 10 a.m., the arena-like floor of the New York Stock Exchange was in turmoil; 2,000 brokers, clerks and messengers milled around the 18 trading posts. Many stocks that were not widely traded opened on schedule. But for many of the popular blue-chip stocks, which have led the bull market rise, an opening was impossible. About each post gathered knots of worried men anxiously awaiting buyers for the thousands of shares of stock they had orders to sell. At the center of the hubbub were the specialists who handle the stocks—some dealing in as many as 25 issues, while others work only a single stock. As members of the Exchange, they have the job of making sure that there are always enough orders, both to buy and sell, to keep the market “orderly,” i.e., to keep prices from rising or falling too fast. When there are not enough orders, the specialists buy or sell stocks themselves, using their own money. But never have they faced such a crisis as last week’s. The orders to sell were so huge—and the buy orders so few—that the specialists were faced with the problem of buying millions of dollars in stocks —in a panicky market—at their own risk.

Frantically, the stock specialists pleaded with brokers to talk their customers into canceling sell orders or, failing that, to help find some buyers. Finally, in desperation to get their big stocks open, the specialists did the only thing they could do: they started buying the stocks for their own accounts, gambling that the break was only temporary and that they would soon be able to get rid of the shares. One specialist was forced to lay out $618,000 to buy 25,000 shares of American Airlines; two others paid out $605,000 apiece for 22,000 shares of U.S. Steel stock; the Union Carbide specialist dug into his own funds for $1,500,000 to buy 15,000 of the 17,500 shares suddenly dumped on the market. All told, to put some kind of floor under their stocks, the Stock Exchange specialists paid out an estimated $100 million for stocks that no one wanted at anything like the prices of the previous closing.

Rallies & Retreats. Only then did the market leaders start moving. Thanks to the specialists, most of the leading stocks had props to keep them from tumbling too far. Even so, the drops were bad. Raytheon Manufacturing Co. soon went on the board with 16,000 shares sold, down 3 points from the previous close of 17½. At 10:30, Royal Dutch Petroleum opened with 14,000 shares, down 10 points from 86. Slowly, other blocks appeared on the tape: 15,600 shares of Standard Oil of New Jersey, off 10⅛ from 139⅛; 17,000 shares of Cities Service, off 7¾ from 62¾; 20,000 shares of Phillips Petroleum, off 7⅛ from 79⅜; 20,000 shares of RCA, off 5¼ from 50¾; 25,000 shares of Bethlehem Steel, off 8¼ from 164. At 11:38, giant General Motors finally started moving with 55,000 shares sold; at first the loss was only 3⅞ points from 143⅞, but the pressure was too great. Within minutes G.M. sagged to 135, a loss of nearly 9 points.

By noon, when 3,400,000 shares had been traded, nearly four times the normal amount, a few short rallies started flickering across the board only to die out as new selling waves rolled in. Yet the market handled the huge volume well; the ticker was rarely more than two minutes late. By early afternoon there were still some stocks that the specialists, trying vainly to find buyers for or finance themselves, could not handle. American Tobacco, Du Pont, Procter & Gamble, General Foods were still not open. Not until 3 o’clock, 30 minutes before the close, did Du Pont finally get on the board. The price: 11,000 shares at 210, down a whopping 20⅞ points.

But by then, the worst was over. The intermittent rallies trickling in picked up strength as bargain-hunting investors jumped into the market. The big investors, such as insurance companies and investment trusts, who had not joined the first waves of selling, now started buying.

The Cost. When all was over, the session added up to the blackest 5½ hours the New York Stock Exchange had seen since Oct. 29, 1929. All told, 7,720,000 shares, more than double the usual number, had been traded. On the Dow-Jones averages, industrials plummeted 31.89 points, rails 11.15 points, utilities 2.46 points; in industrials the nose dive just about matched the drop that occurred when the market first collapsed in 1929. Overall, the composite average of 65 stocks showed a drop of 10.76 points to 162.75. Half the entire 1955 gain had been wiped out. The depreciation on 1,500 stocks listed on the Big Board amounted to a staggering $14 billion and the sharpest break since October 1929, when losses hit $16 billion.

On Wall Street the gloom hung thicker than London fog. Most knew that the specialists had bought all they could—stretching their financial resources close to the breaking point. Brokers felt that if Ike had taken a turn for the worse on Monday, many a specialist would have gone under.

The Second Bounce. But with cheering news from both the President’s bedside and from U.S. business itself (see above), the market rebounded sharply. On Tuesday and Wednesday a few big institutional buyers and thousands of small investors who had busily sold on Monday started buying hand over fist. At week’s end a flurry of short-term profit-taking took some of the bounce out of the rebound. But still, Dow-Jones industrials closed at 466.62, some 11 points higher than on the day of the break, and the rest of the Board followed along.

Solid Base. The most notable thing about the break was how well the stock market withstood the shock. For months many Wall Streeters have felt that some stocks, notably blue chips, were too high compared to earnings and dividends, and were ripe for a fall on any bad news. Ike’s heart attack was about as bad a shock as the market could get. The fact that it had absorbed the huge selling and started up again seemed to be the best evidence that it was on a solid base. In the long run, most brokers thought that the shake-out would prove to be a good thing. They said that the stock market, where stocks are listed as selling “ex-dividend” immediately after the record date for payment of a dividend, is now selling “ex-Eisenhower.” Anyone who buys stocks must take into account the possibility that Ike may not run again, that there may be great political changes in the next few years. The fact that thousands of investors rushed in to buy stocks anyway was the best proof that, after the first shock, they still had faith in the solidity and continuing growth of the U.S. economy.