WALL STREET: Valley of Despair

Valley of Despire

For seven days in May, a price rally raised hopes that the stock market might finally be pulling out of its five-month slide. But that was two weeks ago, and last week the drop resumed.

Sour suspicions about Watergate, the continued weakness of the dollar, the soaring price of gold—up to a record $118.75 an ounce in London—and the continued rise of inflation and interest rates combined to hammer the Dow Jones industrial average down 37 points, to 894. After a brief moment of sunshine, Wall Street again became a valley of despair.

Securities men are worried not only about stock prices but also about their own survival. Trading volume is running nearly 10% behind last year's rate on the New York Stock Exchange, and a chilling 40% below 1972 on the American Exchange. The 549 member firms of the N.Y.S.E. collectively lost $75 million in this year's first quarter. Some 67 sizable brokerages are under surveillance by the N.Y.S.E. or Amex because their capital is running dangerously low; last week Weis Securities, a big Manhattan investment house, was put into the hands of a liquidating trustee. Says Broker Bradbury K. Thurlow: "I can't see why anyone in his right mind would keep money in this business."

The root cause of all this trouble is that individual investors are vanishing from Wall Street, leaving more than 70% of the stock trading to be done by institutions such as banks and pension funds. Last year, the number of stock owners in the U.S. declined for the first time since the N.Y.S.E. began counting in 1952, and holders of mutual-fund shares sold more than they bought for the first time since record keeping began in 1941. Odd-lotters, who trade fewer than 100 shares at a clip, withdrew a whopping $2.3 billion from the stock market last year.

Favored Hedge. Individual investors suspect that they have been neglected by brokers who are anxious to woo the big-block trades of the institutions. Individuals pay higher commissions than the institutions do, and many feel that they get inferior research service from brokers. Some also fear that the institutions profit from inside information not available to the small investor. The Equity Funding scandal this spring did nothing to allay that suspicion; some institutions got rid of their stock before news broke that an insurance subsidiary of Equity Funding had been falsifying its books.

Feeling unwanted in the stock market, individual investors have found plenty of other places to put their money. Since 1970, savings institutions have accumulated $180 billion in new deposits, some of it at the expense of Wall Street. Closed-end bond funds, which promise steady returns of up to 7.5%, attracted $1.2 billion in new money last year. Speculators who want fast action are setting one trading record after another in corn, soybeans and other commodities.