Business: WALL STREET'S SEASON OF SUSPENSE

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IN its crusade against the worst outbreak of inflation in 18 years, the Government has been struggling for months to create a climate of uncertainty among businessmen, consumers and investors. The rationale is that considerable uncertainty about the future course of the economy is necessary to erase the nation's deep-seated inflationary psychology. As long as people persist in believing that economic growth is perpetual and price rises are inevitable, they will continue to buy and borrow in order to beat still further increases. Once people begin to doubt that "good times" will last forever, the theory goes, then everyone will become more cautious in his buying decisions, demand will slow down—and prices will taper off. This effort to conquer euphoria has at last succeeded in an area of the economy that deeply affects most U.S. adults: the stock market. Wall Street's speculative binge has been replaced by the bear market of 1969.

Who Got Hit. The first victims of Washington's assault on inflationary psychology are the 100 million Americans who either own shares or participate in the stock market indirectly through pension funds and mutual funds. For many families, tumbling stock prices have at least temporarily shattered some cherished dreams. Yet the market's unsettled state brings a wry kind of cheer to Washington's inflation fighters. In their rather clinical view, stock prices are much like spinach prices or durable-goods orders: an economic indicator. Because the market mirrors investors' expectations of the performance of U.S. business, it is a valuable (but sometimes flawed) barometer of the economic future. A stock-market decline is perhaps the strongest signal yet that the Government is finally beginning to bring the overexuberant U.S. economy under control. "Inflation is being wrung out of the stock market," says Walter E. Hoadley, executive vice president of California's Bank of America. "The correction is a prerequisite to a resumption of healthy growth."

Despite a rally last week, the Dow-Jones industrial average is 15% below the year's high of 969, which it reached in mid-May. The Standard & Poor index of lower-priced shares is down 35%, and many other stocks have lost 50% or more of their value. The plunge has hit nearly every industry. From their 1969 peaks, shipping stocks are off 46%, airlines and motion pictures 40%, aerospace 39%, sugar companies 38%. Losses are only slightly less among coal, copper, textile, oil and insurance shares. Most of the leading conglomerate corporations have dropped disastrously: Litton is off 43%, Gulf & Western 50% and Ling-Temco-Vought 63% .

Last week the market moved like a Yoyo. For the first 21 trading sessions, the Dow-Jones fell straight down, dropping briefly below 800 to a point even lower than it was five years ago. At midweek, a long-awaited rally suddenly began. The Dow struggled up H points on Wednesday, its first gain in almost two weeks. In the week's final two days, it jumped 23 points, to close at 827. The rally at first was fired by false rumors that banks planned to reduce their 81% prime interest rate. Brokers called the rebound a sign that investors were eager to jump at almost any chance that the oversold market might reverse itself. Few were willing to predict, however, that the long slide had ended.