Brake on the Market

The biggest new-money corporate financing in history floored the stock-market last week for a count of nine. On Wednesday, the American Telephone and Telegraph Co. announced it planned to issue $351 million in debentures and increase its authorized capital stock from 25 million to 35 million shares. No sooner had word reached the Street than A. T. &T. stock took a dive.

At the close of business it had fallen 3⅞ points to 193. Next day it opened at 187¾, down an additional 5¼ points. Nervous motor and steel stocks dropped too; others sagged one to eight points. Soon the market was caught in the heaviest selling and the deepest break in industrial averages since late July (TIME, Aug. 5). The Dow-Jones index plummeted through 200 (the reputed resistance point of this market) and came to rest at 196.66. Over a million and a half shares had been traded.

Wall Streeters had their explanations. The bearish sentiment, touched off by A.T. & T., had been caused by: 1) the U.S. ultimatum to Tito, 2) Chrysler's announced shutdown, 3) "discouraging" second-quarter earnings. Moreover, A. T. & T., being a pivotal stock with one of the highest quotations on the market, had a disproportionate effect on the Dow-Jones index. Heavy trading in A.T. & T. had carried the whole industrial index below the market's resistance point, scared holders of other stocks into selling.

The Why of the Dump. Just why A.T. & T. had dropped first and farthest was easier to explain. Since June, announcement of new financing has almost invariably been followed by a drop in the stock of the company concerned. When Montgomery Ward and American Home Products announced new issues, stockholders went on a selling spree; Monky Ward's stock dropped 21½ points and American Home Products fell 22½ points. A.T. & T. stockholders last week were of the same temper. They looked beyond the $2 billion expansion program (reason for the new financing) to see its effect on A. T. & T. earnings. What they saw was not to their liking. A.T. & T.'s whopping new issue of debentures would collect interest before the distribution of stock dividends. They promptly dumped their holdings—18,300 shares on Thursday alone.

At week's end, A.T. & T. had climbed back 8¾ points, stood at 189¼. The rest of the market showed signs of making another slow, tedious climb back to grace. Some brokers say this shows the bull market is still alive & kicking. But security Analyst John H. Lewis did some plain speaking in The Commercial and Financial Chronicle. Said he: "The four-year-old bull market ended last May 31st." Wall Street sighed, hoped it wasn't so.