The Professionals Take Over

At the height of Wall Street's trading frenzy last week, Chase Manhattan Bank Economist William Butler told a top New York broker: "Well, I guess this is a healthy readjustment." Snapped the broker: "One more healthy readjustment like this and I'll go through the window.''

Nobody went through the window, and few really went through the wringer. But the convulsion that swept the stock market cost millions of Americans dear in anticipated profits, and particularly the amateurs among "small investors" who put their money into the market at or near its peak and sold out at last week's low. Not since the dread year of 1929 had trading been so heavy (average daily volume: 10,000,000 shares) or the ticker tape lagged so late. Before the week was over, delays of an hour or more in the tape became routine, and one night the final Dow-Jones averages were not calculated until five hours after the market's 3:30 close.

The 21% Plunge. It began with a day that will rank with Wall Street's Black Tuesday of Oct. 29, 1929--Blue Monday, May 28, 1962. That morning, brokers were deluged with sell orders that had been piling up over the weekend from two sources: 1) small investors frightened by the previous week's break, and 2) investors who had borrowed from banks or brokerage houses to buy stocks that had faded, and who were now being ordered to put up more collateral. One of the few avowed buyers that day was penurious Billionaire Jean Paul Getty, who from London had ordered his brokers to pick up for him "40,000 or 50,000 shares" of oil company stock--Gulf, and his own Skelly, Tidewater, and Mission Development.

As the day wore on, selling panic buffeted the widely held blue chips: IBM fell 37 1/2 to 361, Du Pont 12 1/2 to 202 1/2, A.T.&T. 11 to 100 5/8. So irrepressible was Blue Monday's selling pressure that more than 4,000,000 shares changed hands in the final 30 minutes of trading, and the last transaction did not clear the ticker tape until 2 1/2 hours after closing. In the second bleakest day in Wall Street's history, the Dow-Jones industrial index plunged 34.95 to 576.93--21% below its peak of last December.

Bargain Day. Surveying the debacle from the inner offices of brokerage houses, banks and mutual funds, the men who make markets decided that many stocks had touched bottom and now was the time to shop for blue-chip bargains. Monday night, Boston Investment Counselor Garfield Drew, the champion of the Odd Lots Theory (TIME, March 31, 1961), rushed out 4,500 telegrams urging purchases of such hard-hit issues as Polaroid, Xerox and American Machine & Foundry. On Wall Street, mighty Merrill Lynch, Pierce, Fenner & Smith sent out a "Buy Flash"; so did Paine, Webber, Jackson & Curtis, E. F. Hutton, Francis I. du Pont, and other influential brokerage houses. The long-distance wires hummed from Minneapolis, where the nation's biggest mutual fund group, Investors Diversified Services, was placing orders for $20 million worth of common stocks.

By Tuesday noon, the ticker tape plainly reflected the rally that the institutions began. Big blocks of buy orders--3,200 shares of Jersey Standard, 5,000 General Motors--raced across the four screens in the corners of the Stock Exchange's main trading arena, and floor traders sent the good word back to their home offices, which in turn wired out more buy flashes. But buying was highly selective: rather than plunging in "at the market price," as small investors usually do, the big funds had stated the prices that they were prepared to pay--and bought only the stocks that met their figures. By day's end, volume swelled to a post-1929 record of 14,750,000 shares, and the Dow-Jones had recouped 77% of its Blue Monday loss.

The Memorial Day breather gave Wall Street's harassed brokers and clerks a chance to catch up, and the nation time to absorb the news that the market was hardening. By Friday noon, as the buying fever subsided, the ticker tape caught up with orders for the first time since Monday. At the week's close, the Dow-Jones stood at 611.05--almost exactly even with the previous week's close of 611.88, before the Blue Monday began.

Slow Convalescence. Though Wall Street cynically holds that the public memory endures roughly 24 hours, few market professionals at week's end believed that small investors, once burned, would soon return to the market in such numbers as before, or that the deflated glamour stocks could look for another astronomical climb that so disregarded price-earnings ratios. With something close to unanimity, analysts expressed the hunch that the Dow-Jones would probably struggle slowly back to the neighborhood of 650--largely stimulated by institutional buying, focusing on stocks with proven growth records, dividend yields of 4% or so, and price-earnings ratios of less than 20 to 1. Said Donald Meads, vice president of Investors Diversified Services: "If you accept the premise that prices were too high and yields too low to begin with, there is no reason to think that the market will go right back up to where it was."

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