Muscle Flexing

Wall Street was more cheerful last week than it had been for months. With the stock market surging to a new high for the year, the Dow-Jones industrial average closed the week at 181.16, nearly 20 points above the June low.

Was this the traditional summer rise (since 1897 the market has registered an average midsummer gain of 16% over the spring lows) or the beginning of a long upward pull? One Philadelphia broker thought "Those who now remain on the sidelines might find themselves among the crowd scrambling for stocks 20 points higher." But many were still pessimistic. The mid-August short interest was 2,006,119 shares, a 17-year high.

In any case, industry was beginning to flex its muscles again. Businessmen have increased their bank loans by $80 million, steel production has edged up to 84.8% of capacity (about where it was in June) and textiles have picked up so fast that some rayon prices are up 10% since June.

Brightest spot is the construction industry. Although it started off slowly this year, building has generated plenty of steam. In June and July, a total of 196,000 new housing units were started, 4,200 more than in the near-record year of 1948.

Looking at this good news, some overeager optimists crowed that the recession had reached bottom and that things were already on the upgrade. Most businessmen, eying the continued slump in department-store sales, took a "show me" attitude. They thought it would be well into the fall before anyone would know for sure whether the pickup was only a seasonal summer rise, or the start of a general upsurge.

New York Stock Exchange President Emil Schram also took a cautious view. He saw "encouraging signs" of an uptrend, but he also called at the White House to tell President Truman how production and new investment could be stimulated by tax cuts. Among his recommendations :

P: Allow stockholders to deduct 10% of their dividends from their income tax.

P: Reduce the tax on long-term capital gains to 10% (present maximum: 25%).

P: Permit investors to take a capital gain on stock profits after holding the stock for three months instead of six.

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