September Market Slump

Day after day. Wall Street slogged along in the same gloomy pattern. In quiet trading, rarely involving more than 2,000,000 shares at a session, most stocks slipped lower. The market dropped on four of the five trading days last week for a total of 14 declines in the last 17. The Dow-Jones industrial average closed at 475.25 for a 15-point drop during the week, 28 points below the beginning of September and 46 points under the alltime high last April 6. It stood within 12.90 points of the Jan. 23 low for the year.

Wall Street's professionals were full of theories, laid the decline to a combination of the Suez Canal crisis, tight money, technical factors in the market and a sudden spate of stories touting Democratic chances in November. Some market .analysts raised the specter of a bear market, but most of the pros said no. Said Benton & Co.'s Albert Tompane, a leading U.S. Steel stock specialist: "Money has been tight all summer. People haven't got excess funds. The bull market is leveling off, but we're not in a bear market, and the economy is as sound as ever." To Paine, Webber's Luttrell Maclin. the "election of the Democrats would not be catastrophic, or even necessarily bearish." His explanation of the slide: "The market was just too high. General Motors and Du Pont, for instance, reached their high a year ago, and they've been going down ever since." Walston & Co.'s Research Director Edmund Tabell, a top chartist, added: "The market has lost upside momentum for 18 months. But this is not what I call a bear market. This is just a selective market."

Slowdown. Most of the elements of a readjustment have been growing within the market for some time. As credit tightened, pushing business borrowing rates to 4% for prime loans, up to 5 1/2% for others, the spread between stock and bond yields has narrowed, making bonds a more attractive buy. On the Dow-Jones industrial average, the yield is slightly above 4.81% for stocks v. 4.07% for bonds; on Standard & Poor's index, which Wall Street also follows closely, the spread is 4% for stocks v. 3.61% for bonds.

Furthermore, as companies expand and float new securities, still more money is being drawn away from existing issues. For the first nine months of 1956, almost $6 billion worth of bonds were floated v. $5.2 billion for the same period last year. In addition, new stock issues in the first three weeks of September alone climbed to $169 million v. only $55 million in all of August. Thus, the September market slump was not so much an urge to sell as a reluctance to buy; the trading was the lowest September level in two years. Most of the selling was by relatively small investors, while the big investors such as pension funds are either sitting tight with their holdings or buying proportionately more bonds.

Speedup. The slide took place while the economy boomed on--except for farm prices, which edged down 1/2% from mid-August to mid-September (the third drop in a row). Steel production blazed at 100.6% of capacity. Business outlays for new plant and equipment will hit a $38 billion annual rate in 1956's final quarter v. $31 billion last year. For the auto industry. 1956 would probably turn out to be the third best year on record with production of 6,286,000 units, behind only 1950 and 1955.

Consumers were buying. The Federal Reserve reported that retail sales of nondurable goods last week jumped 8% higher than last year's levels. And a survey of bankers by the Clothing Manufacturers Association reported that retail sales are expected to keep on climbing in the fourth quarter of 1956 and on through the first six months of 1957.

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