Testing a New High

The stock market tried last week to hurdle the magical 900 mark on the Dow-Jones industrial averages but at the last moment shied away like a nervous horse. Twice during the week, while Wall Street watched with fascinated suspense, the market edged above 900 for brief periods during the day. Each time, however, scared that it had gone too high too fast, it retreated. After eleven straight days of advance, it closed on the day before President Johnson's oath-taking at 896.27, a new record, then eased off to end the week below 894.

Underestimated Impact? The Dow-Jones 900 is a strong resistance point, and stocks may have to test it several times. President Johnson's hospitalization could have unsettling effects upon a market that likes Johnson and dislikes uncertainty. But presuming that Johnson recovers quickly, many Wall Streeters expect that the 900 mark will have to surrender before long. A good deal depends on how investors receive this week's budget and economic messages from the President. Said Goodbody & Co. in a market letter to its customers: "It may be that we have somewhat underestimated the bullish impact that the Great Society concept seems to be having on the investment public."

Investors have also been impressed by the continued advance of the U.S. economy. Early last week stocks were lifted by the Commerce Department's reports on economic performance in December: factory orders rose 5%, housing starts 8% and personal income almost 1% to a record $506 billion.

Department-store shares climbed on the Street on news that retail sales in January were running well ahead of the same period last year. Auto stocks did well because Detroit's production so far in 1965 is 7% ahead of last year's rate; this week output will be 17% higher than in the same week a year ago.

Better Stocks. Good business news seems to be having a particularly strong impact upon the small investors who buy in "odd lots" of fewer than 100 shares. For the first time since they were badly singed in the 1962 crash, they are beginning to re-enter the market in significant numbers. On almost every trading day this year, odd-lots investors have bought more shares than they sold. And they are not investing in cheap stocks: the average stock bought in an odd lot now costs $52 v. $39 for the average share bought in round lots.

The little man may give the market a needed lift, but the market's future will still be determined largely by the huge and growing institutional investors. Last year the market was swelled by $2 billion from pension funds, $1.3 billion from such mutual funds as Massachusetts Investors Trust (see Management) and hundreds of millions more from other institutions. The institutions hold about 15% of the nation's $650 billion worth of common and preferred stocks, and such companies as G.M., A.T. & T., G.E. and IBM each have about 1,000 institutional investors. The institutions have more money than ever to invest these days, but their managers have put much of the cash into Government bonds while they shop around for bargain-priced stocks. If they decide that the market is good for further gains, that decision could keep the market rising for quite a while.

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