Wall Street Worries

As a judge of economic trends to come, Wall Street has been getting more accurate. After some baffling bloopers in the early postwar, the stock market "called" every recession and recovery since 1948. And since it broadly reflects the money-backed bets of businessmen and the public, some people are getting concerned about its performance in the past six weeks. While the U.S. President and most economists have been predicting that 1962 will rank between a good and a great year for business, the stock market seems to be saying otherwise. In the first four days of trading on the New York Stock Exchange last week, the Dow-Jones index of industrials tumbled more than 15 points to 696.03--making a total drop of nearly 40 points from its alltime high of 734.91 on Dec. 13. At week's end, the market rallied modestly to 700.72.

What is the market saying now?

One More Fling. Last week Wall Street market analysts who have the best record for forecasting recent economic gyrations agreed that the behavior of the Dow-Jones index is decidedly not signaling a recession in the next few months. "What we've been seeing," insists Edmund W. Tabell of Walston & Co., "is more of a correction of a ridiculously high market than an anticipation of a downturn in business." James F. Hughes of Auchincloss, Parker & Redpath is equally certain that "people are getting prematurely bearish. The market has one more fling."

To support his analysis, Hughes points to still another sensitive indicator. "Since 1919," he notes, "every major high in the market has been preceded by a high in the investment holdings of commercial banks, and every market low by an investment low." The theory is that during an economic expansion, businessmen eagerly seek loans, and banks sell their investments to satisfy the demand. This sops up money from the stock market, sends stock prices down. As loans increase, money gets tighter and expansion slows. But, says Hughes, banks now plan to increase their investments. If that does not lift the market to new highs, "it will be the first time that it has not happened."

Switch in Portfolios. Even so, the experts are choosing their stocks with considerable care. In recent months, they have favored "defensive" issues that tend to advance in tandem with the population growth and the rising standard of living, e.g., food, cosmetics, tobacco, publishing, insurance, utilities and banks. As of last week, the bloom was off most of these rosy issues because prices have skipped far ahead of earnings forecasts. Now the experts are eying the industries that tend to curve along with the business cycle--oils, industrial machinery, rails, chemicals, paper--and which stand to profit if general business activity picks up as anticipated this year.

When will the market peak out and start the plunge that signals a coming recession? Many analysts expect a big dip within a year. Most pessimistic is Alan Greenspan of Townsend-Greenspan, who says: "The peak of the bull market will be in the early spring, or at the latest by midyear." Most optimistic is Edson Gould, partner in Arthur Wiesenberger & Co., who believes the Dow-Jones index may reach 953 before a major downturn. "I expect this market to go on for most of 1962," says he. "If the bull market is over much sooner, it will be one of the shortest rallies in history."

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