Breakout?

As the stockmarket, in the face of fat earnings and general prosperity, last week drifted down to a new low for the year, traders began to wonder just what Wall Street would consider encouraging news to investors. In midweek they found out. President Truman's speech to Congress, which seemed to promise a baby armament boom, started stocks moving up. At the same time, the prospects for earlier passage of ERP promised a boost to sagging exports; and the hope that the income-tax cut could probably be passed even over a presidential veto promised to help business all along the line.

By Friday, the cautious buying of midweek had become something of a scramble. Stocks jumped from $1 to almost $5 a share as 1,170,000 shares were traded, the biggest turnover in five weeks. Next day, they rose even more. In the short session, 1,260,000 shares were traded, the busiest Saturday in over two years. For the week, the rise of 5.5 points in the Dow-Jones industrial average (to 173.12) was the best week's gain since January 1947. This week the frenzy continued; the market saw its first 2,000,000 share day in a year.

Up Aircraft. The market was still a long way from the fat days of 1946, when daily volume sometimes reached well over 3,000,000 shares. But in the glum days of the 22-month bear market it was something to make traders beam.

Aircraft shares led last week's little parade. Their earnings were the poorest of all U.S. business but their prospects were good; some of the military manufacturers (e.g., Convair, Boeing and North American) already had backlogs in nine digits. In a week when General Motors (with a record profit) hit a low for the year, Douglas Aircraft hit a high of 63 3/8, though it reported a loss of $2,140,579 for 1947.

Many of the other plane companies and airlines were worse off than Douglas in 1947. But their shares went up anyway. Curtiss-Wright and American Airlines hit new highs for the year. One profit-making exception was Grumman Aircraft Engineering Corp. which earned $2.2 million last year. Its shares went up to 41 1/2, eleven points above the year's low.

Up All? Despite the impressiveness of the rise, the market still had far to go before it convinced traders that a permanent turn had come. It had to break out of the narrow "trading range" between 160 and 188 on the Dow-Jones industrial index in which it had moved since the bull market ended in 1946. Not in 45 years had the market backed & filled in so narrow a range (percentagewise) for so long.

This has caused speculators to believe that the "breakout," when it finally comes, whether up or down, will be a big one. After last week's rise, many a Wall Streeter was betting that the break will be up.

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