MARKETS: June Boom?

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Through April, May and early June last year — while 1938's recession was bottoming—the stockmarket was indigo blue. At 10 a. m. on June 20, something happened. The market turned in its tracks and began to climb. Blue turned to rose color. For two weeks stocks climbed spectacularly. So far as the market was concerned the corner had been turned. Last week something resembling the June turn of a year ago, but on a much smaller scale, took place in the market. Brokers talked jubilantly of another corner being turned.

Shorts. Biggest resemblance between the two movements was in the behavior of the shorts. At the end of May last year speculators had sold no less than 1,343,000 shares which they did not own, and were waiting to buy them back at lower prices. In the two weeks following the turn they were panicked into bidding up the prices of stocks which they had blithely sold. Some of them emerged without their shirts.

Last week if shorts did not lose their shirts, some of them lost their neckties. At the end of April the short interest amounted to 662,000 shares, a 48% increase in four months. In Chrysler stock (the No. i flier) the short interest had increased 176% to 65,000 shares. Shorts had gauged all too well that business was receding. Overenthusiastic pessimists who had had trouble finding buyers, suddenly found too many buyers. When professional buying began, the shorts ran to cover, joined the buying parade. Result: in two days the Dow Jones Industrial average rose 3.76 points, and stockbrokers enjoyed two successive million-share days—enough to add up to a boom by 1939 standards.

Commodity Prices. Last June shorts were squeezed in cotton, hide, rubber, lesser commodities, as well as in stocks. Last week, also on a lesser scale, speculatively minded manufacturers, who had gone short of raw materials, again turned to buy in a rising market. The difference this year is that the commodity price upturn is accompanied by falling instead of rising production, is more speculative, than industrial; cotton textile prices rose as inventories peaked again at over 200,000,000 yards, and manufacturers discussed ways of carrying unwanted cloth; hide prices zoomed as leather production fell from 121 to 114.

Production. Very different in one respect was last week's upturn from that of a year ago. At that time the Federal Reserve Board's index of production fell two points in April, one point in May, turned in June, was on its way up in July (although reported several weeks late its trend can generally be anticipated from weekly figures on various industries). Last week the Board's index reported a six-point drop for April, and May production was guesstimated at 90, June still lower.

The difference was that a year ago consumer goods industries, notably automobiles, had recovered from their inventory troubles of 1937. This year, production of nondurable goods as well as of more sensitive durable goods is declining.