End of an Era

Stockbrokers came back from their Labor Day weekend with nothing to worry about, apparently, but their golf scores. There had been no new shocks, international or otherwise, to the queasy stockmarket. Then it happened. At first, orders to sell were only a trickle. Soon they became a flood. More & more holdings were dumped, until nearly every stock on New York's big board was skidding.

By the time the gong rang at 3 p.m., the toll was terrific. The volume of sales was 2,900,000 shares, the highest since last January. Only 32 issues had advanced, while 548 had reached new lows for the year. Down went General Motors, U.S. Steel, Montgomery Ward and Union Pacific, along with the cats & dogs. Du Pont, bluest of blue chips, suffered the worst loss of all--17 points.

It was the sharpest break in the market in 19 years. In five hours, all the gains of the last year--along with some $4,500,000,000 in values--had been wiped out. Next day there was another avalanche of selling (3,620,000 shares). Then the market rallied, but only briefly. As this week opened, the market cracked wide open again. The Dow-Jones index fell to 172.03, a decline of more than 17 points in only five trading days.

The New York Herald Tribune sounded the knell: "The third oldest bull market of this century has come to a close."

Who Killed Cock Robin? What had caused its demise? The New York Times thought that Walter Winchell,* who had blurted out hints of war in his Sunday broadcast, had started the avalanche. His big "boo" may have shaken a few timid souls, but no more. Other explanations: the revival of OPA, wage boosts, strikes, production bottlenecks, big inventories, or simply an it's about time slump in the 52-month-old bull market. Said the New-Dealing PM: "There's something wrong with the way America is being managed."

How Dead Was He? The fact that so many reasons were advanced was a good indication that something was wrong with the U.S. economy. The market's spurt last spring to the bull-market high in May was in anticipation of the lush profits caused by 1) the huge demand and 2) huge wartime savings. But for many a company the big profits had not materialized; rising costs had chewed them up. Nor was there any hope that the rise in costs would stop. Commodity prices, up 22% since the end of the war. were still soaring. Labor efficiency was down (see Autos) and another wave of raises all around--which most businessmen expected--would boost the labor cost still more. In short, peak production alone did not promise the profits which stock buyers had been betting on.

What was needed, in the opinion of Wall Streeters, was a realignment of the U.S. economy which would, among other things, bring down commodity prices and step up labor efficiency. After World War I, the 1920 recession had done that. Then stock prices had tumbled, some six months before the recession came. Most businessmen now expected a similar slump to bring down commodity prices and step up efficiency when much of the present demand is met, some time next year. Until that occurs, many a Wall Streeter was betting that the market will either 1) go lower or 2) back & fill.

The big bull market was gone. But no one seemed to know when the next little bull market would arrive.

*After being criticized once before (TIME, Dec. 31) for the very same thing Winchell declared that he would not care to commit his funds in such a way that their value would be damaged by a mere radio commentator.

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