WALL STREET: New Market Measure

Investors in the New York stock market have long been hampered by the lack of an accurate barometer to tell how the majority of stocks are doing. Present published daily averages are computed on the basis of a small, hopefully representative sampling of stocks that often does not show the action of the market as a whole (TIME, Jan. 14). This week Standard & Poor's announced a weighted index of 500 stocks representing 90% of the total value of all stocks listed on the exchange. Said Standard & Poor's President Charles A. Schmutz: "It will be the most complete and technically accurate measure of the market ever devised." The new index will be carried hourly on the tickers of the American Stock Exchange, Commodity News Services and Cotton Ticker, be available to all clients of Standard & Poor's statistical service.

It will be computed by the same method used to arrive at Standard & Poor's pres ent daily and weekly indexes (the daily will be discontinued), e.g., the market value of a company's stock is multiplied by the number of shares outstanding, to get the issue's current value, then compared to a total market value in a base year.

True Average. A big advantage of the new index is that it will give the investor a true idea of the average price of a single share of stock—a figure that has been lost in the inflated statistics of almost all market averages. On Dec. 31, for instance, Standard & Poor's daily industrial index closed at 498.9 and the Dow-Jones industrial average at 499.47, yet the New York Stock Exchange reported that the average value of one share of stock on that date was only $49.12, or about one-tenth as much.

To remedy this discrepancy. Standard & Poor's will compile its total on a base of 10 instead of the present 100, junk the present 1935-39 base years in favor of a 1941-43 base, when the average price of a single stock was $10. Thus, the new index will start off with a figure very close to the actual average price of one share of stock, and its fluctuations will accurately reflect the price fluctuations in the market as a whole.

Electronic Brain. Standard & Poor's system (cost to date: $50,000) is the result of a year's experimentation with an electronic computer that keeps tabs on the market. The transactions on the exchange's ticker tape are duplicated on a special tape that is fed into the machine. The brain rejects all extraneous information carried on the exchange tape, such as news bulletins, picks the latest quoted price for each stock, multiplies it by the number of shares outstanding (a figure previously fed into its memory drum).

The computer has even learned to adjust to the ticker's habit of dropping digits when it falls behind the trading pace on the floor, can recognize and signal mistakes in quotations in a matter of seconds. The system is so swift that it would be possible to average all the 1,500 shares listed on the exchange, on an hourly basis. But Standard & Poor's feels that the new index will do just as well, since the stocks not in the index are little traded, have little effect on the market.