STATE OF BUSINESS: Breakthrough

It was a historic week for Wall Streeters. Led by such blue chips as U.S. Steel and Standard Oil (N.J.), the Dow Jones industrial average broke through the 520 level that has been a barrier three times before, climbed to an alltime record high of 526.57 before settling back to 526.43. What gave the market its record-breaking push was the same combination of improving business news, institutional buying and fear of inflation that has sent it on one of the steepest climbs in history.

Where will the market go now? Though the rise of 106 points has silenced most of the bears, some of them are still betting on a drop. Last week the New York Stock Exchange announced that the short position by Sept. 15 had declined only 158,807 shares to 5,646,414 shares, still one of the biggest totals in history. While a big short position is usually a prop under the market because it ensures buying to cover at lower levels, Wall Streeters point out that this may no longer be true. Many investors are now protecting profits by short sales,* plan to deliver later stock that they already own.

The single argument most widely used by the bears is simply the high price of stocks. In spite of a second quarter pickup in earnings, the stocks in the Dow Jones industrials average are now selling at more than 18 times earnings, v. 7.5 times earnings in 1949, 10.2 in 1953, and 12 times earnings at the bottom of the decline last October. But few security analysts are willing to “argue with the tape.” i.e., what the market has done in the face of falling profits. As the market has picked up steam, more and more of them have become bullish. Only a minority last winter foresaw the rise. Some of that minority’s present opinions:

¶ Said Samuel L. Stedman, partner of Carl M. Loeb, Rhoades & Co.: “I don’t see a major selloff, but this level will tempt a lot of companies into financing, and these rights offerings may take some of the upward pressure from the blue chips. Specialties should move up while the rest of the market churns.”

¶ Said Jacques Coe, partner of Jacques Coe & Co.: “There is no danger now of a big break.”

¶ Said Walter Gutman, analyst at Shields & Co.: “So far earnings have not yet reflected capital improvements; companies can expect to benefit from the $200 billion they have invested since 1950. Taking this into consideration, stocks are not overpriced.”

* An investor who holds 100 shares of a stock at a profit but does not want to take the profit for tax or other reasons sells 100 shares short. When he covers the short sale by delivering the stock in which he has a profit, he receives whatever the price was at the time of the short sale, no matter how low the price may meanwhile have dropped.