Testing the Floor

Wall Streeters have had an uneasy feeling about long holiday weekends ever since 1946. That year, after a three-day Labor Day weekend, they came back to work in a restful and unsuspecting mood, only to see the big wartime bull market collapse in six days of heavy selling. Last week, after the three-day Memorial Day weekend, they came back feeling pretty nervous. They had reason to be.

Before the opening day was over, a flood of selling orders (1,236,840 shares) struck the already ailing market its worst blow of the year. Out of 1,084 issues traded, 877 went down, breaking anywhere from 1/8 to 5 points. U.S. Steel sank to its lowest price in two years. The Dow-Jones average of industrial stocks broke 3.17 points. Next day it went on down to 166.53, the lowest since March 19, 1948.

Sinking Prices. In the drop, some bears unquestionably made a quick neat profit--since the "short interest" was already at its peak (TIME, May 30). As the market opened this week, it dropped again. A test was at hand of the mystic level of 163.12, the low mark made in the 1946 crash, which all subsequent drops had failed to penetrate.

If the averages failed to break through that "floor," bulls and chartists thought the market would bounce up. If it did go through, bears thought it might slide on down to the "floor" below--i.e., the 1945 low mark of 151.35.

As usual, Wall Streeters could give no solid reason for the selling. It simply looked as if investors, watching the creeping inroads of the "slide," had finally decided that U.S. business was headed for more serious trouble. But businessmen did not seem to be nearly as worried as the investors who had unloaded their stocks.

Last week, after a nationwide survey of 1,776 companies, Manhattan's hardheaded Dun & Bradstreet, Inc. predicted that all U.S. sales for the second half of 1949 will show an average decline of only 3.3% under 1948's record total. The group surveyed did not expect more than a drop of 3.6% in profits on the average--ranging from 5.1% for the durable goods companies and 4.2% for the wholesalers, to 3.6% for the retailers and only 2.5% for the non-durables.

Rising Dividends. Dun & Bradstreet's President Arthur Dare Whiteside, wartime boss of civilian production, was struck by one big fact in the survey. The pessimists, said he, were not pessimistic about their own business; they expected to do fine. It was the other fellow who would have the trouble.

In the face of this optimism, some Wall Streeters wondered if the market might not have oversold its pessimism. Investors had not paid much attention to record profits in the last two years, because a large percentage of the profit went for company expansion instead of dividends. Now, as expansion programs were completed, more & more companies were boosting their dividends. And rising dividends, as Barren's financial weekly pointed out, "are hardly the hallmark of a deep depression."

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