New Market, New Rules

The stock market sprang another surprise last week. Normally, before a holiday, the market is supposed to turn dull and drop a few points. But last week, in a strong upsurge, it rose four points to 270.25 in the Dow-Jones industrial averages, the highest mark in more than 21 years.

Thus the market confounded both the bears and the financial soothsayers who had thought that the summer slump would give it a permanent downward push. Actually the market never got below June's low of 242.64, and has climbed 27 points since.

Different Animal. Most crystal-gazers have been baffled because they have tried to judge the current market by old rules. 1951's bull market is different from its predecessors, largely because there has been none of the speculative frenzy that usually accompanies bull-market tops. The so-called "little fellows" have jumped into the market all right, but instead of chasing after cheap cats & dogs they have largely bought blue chips and held on to them, ignoring price fluctuations. Those with large stock profits have not sold because, with dividends so high, they can find no better employment for their money. And pension funds and investment trusts have quietly and steadily gone on buying up good stocks, adding to the market's strength.

Among investors, the feeling seems to be growing that a tremendous, fundamental change is overtaking the U.S. economy. U.S. industry is in the biggest expansion in its history, and tremendous Government spending for years to come seems bound to keep sales, profits and dividends high in spite of taxes. Growth is in the air, and investors are hunting for the companies with the biggest growth possibilities. Example: the mere rumor that Glidden (TIME, Feb. 26) would announce the successful mass-production of cortisone from soy beans sent Glidden stock shooting up 4 points in a day to 44.

Different Standards. Despite its long climb, the market is still not as high as it looks. In prices, it is getting within long-range shooting distance of 1929's Himalayan peak (381.17). But sales and earnings have so far outstripped 1929's that comparisons with 1929 prices are no longer valid.

For example, General Electric, at the peak of the 1929 boom, sold for 101 (adjusted for stock splits), which was 43 times its earnings. Last week it closed at 595/8 (60% of its 1929 price), which was a mere 12 times its earnings. In most cases, industry's sales and profits have kept pace with the rising stock prices. Thus, despite a 65% gain in the industrial average since mid-1949, the ratio of prices to earnings is only about 20% higher now than it was two years ago.

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