Wall Street: One Hectic Week

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Steels, oils, food processors, retail chains are all hammered. Only 170 stocks rise, while 1,004 fall and 695 strike new lows.

The Dow-Jones loses 10.68.

The Public Impact. The New York Times combined stock average dropped farther in one week than in any week since Nov. 9, 1929. Of course this was no 1929 again—there are too many safeguards around for that—but Wall Street's news was disquieting nonetheless. Today's stock market is neither the clubby preserve of the rich nor a Monte Carlo for bet-a-million adventurers: it is a national institution into which one U.S. adult in eight has placed part of his savings. So much has been invested in the market by private pension funds ($17 billion on the New York Stock Exchange alone) and insurance companies ($12 billion) that what happens on Wall Street affects every pocketbook in the land.

In a general way the stock market reflects investors' money-backed bets—right or wrong—on the future prospects of the U.S. economy. The Commerce Department lists the stock market as a "leading indicator,'' whose rises and falls often portend coming turns in the business cycle. Over the years, the market has let out some false cries of wolf, but the record shows that its 20% drop in 1956-57 presaged one recession and the 17% sell-off in 1960 telegraphed another.

And it is an economists' truism that when its swings are extreme enough, the market affects the economy, spurring a recovery or speeding the onset of a recession.

Where does the market stand now? The consensus of many leading Wall Streeters was expressed last week by Frederick Millett, research partner of highly respected Goodbody & Co.: "The bull market is over; we are in a bear market."*

The Prime Reason. What puzzled many was why the market should be withering at a time when U.S. business in general is in reasonably healthy shape.

The U.S. economy is certainly better off than it was 18 months ago when the market was confidently rising. Since last Dec. 13, when the Dow-Jones index began to recede from its alltime high of 734.91, many market dopesters have sought to explain the decline in stock prices by matching it against the headlines. January's momentary decline in the industrial production index was alleged to have sapped investors' faith in the recovery.

Communist gains in Laos were diverting attention from encouraging first-quarter earnings reports. Investors were being frightened, another explanation went, by the SEC's investigation of the nation's securities markets—particularly by the recent public hearings in Washington, which, although temperately conducted, turned up evidence that not even the nation's most reputable brokerage houses are free of touting.