Wall Street: Converging Pressures

Summer is a traditional time for exuberance in the stock market, but this season is one Wall Street would like to forget. Last week despite a feeble two-day rally, the Dow Jones industrial average fell 1.62 points, to wind up at 869.65. It was the fourth week in a row of steady losses that have erased more than half of the Dow's spring gains. From a peak of 923.72 on July 15, the average has dropped 54.07 points, reflecting a $7 billion loss in the market value of 30 blue-chip industrial stocks. Most other market indicators show remarkably similar declines of 5% to 5½%.

So many pressures have converged on stock prices that few brokers last week foresaw much chance of a quick rebound, though fewer still expected the slide to grow into a severe plunge. "The market is awash in a sea of doubt," said Vice President Robert T. Allen of the Manhattan firm of Shearson, Hammill. Along with the prospect of an economic slowdown because of the 10% income tax surcharge, there were worries over declining profits, falling interest rates (which help to suck investable funds back into bonds), and reduced business spending on expansion. With many big institutional traders sitting on the sidelines, trading volume slumped along with prices. On the final day of the week, transactions on the New York Stock Exchange sank to a four-month low of 8,390,000 shares.

Forbidden Sales. The shrinking volume gave Wall Street a breather to dig into its massive paperwork pileup. Despite Wednesday trading recesses, which will continue at least for the rest of the month, the problem of undelivered securities and accounting confusion remains so severe that two organizations last week took drastic steps to overcome it. Merrill Lynch, Pierce, Fenner & Smith, the largest U.S. securities firm, imposed a "house rule" forbidding its salesmen to sell over-the-counter stocks for customers unless they first have physical possession of the certificates involved. The National Association of Securities Dealers, a trade group which polices the over-the-counter market, drafted a similar rule for its 3,700 member firms—but set no date for the procedure to become effective.

However unhappy the NASD edict may make some investors, there are good reasons for it. Unlisted stocks account for at least 60% of the maddening delays in delivering stock certificates. Moreover, the Securities and Exchange Commission virtually dictated some sort of crackdown. Two weeks ago, as part of a stern warning that dealers may be violating the antifraud provisions of federal securities law if they knowingly trade shares they cannot deliver promptly, the SEC suggested that a possession-before-sale policy would be "appropriate."