The Speculative Market

Never before have so many bought and sold so much so often. So far this year, the New York Stock Exchange has traded 680 million shares of stock --more than 8,800,000 shares a day--or 58% more than last year. The smaller, swinging American Stock Exchange traded 318 million shares, up 123% from last year. In the first ten days of April, the American had an 82% turnover, meaning that 82% of the 1,045 issues for sale were traded, many of them with 10-to 15-point jumps in value in a single day.

Searching for comparison, Wall Street oldtimers recalled October 1929.

There is, however, a notable difference. In '29, the massive daily trades were due to panic trading. This time it is confidence trading. Armed with more cash than ever, big and little traders roam the market for cheap stocks that are likely to rise rapidly; then they sell, take their profits, and start searching about again. The result is one of the most speculative markets that Wall Street has ever known.

Moderate Directives. Even normally unflappable governors of both Amex and the Big Board are disturbed by the turn. To head off speculation, they tried earlier this year a series of moderate directives. On certain speculative stocks--28 on the New York Exchange, currently, and six on the American--"stop orders," the device by which investors can automatically lessen losses by selling out when stocks drop to a pre-set figure, were ruled out. On some stocks (21 on the Big Board and 13 on Amex) special margin requirements were set. American Exchange President Edwin D. Etherington last week reminded investors that "it is important, at all times, for people who assess the potential rewards of sound investment to ponder as well the inherent risks of ill-advised or casual speculation." Everybody talked about the small investor, but Etherington seemed to be pointing as well at mutual, pension and investment funds. Rules and reminders, however, did little to bank the fires. Last week, therefore, in the most stringent set of rules ever adopted, the two exchanges simultaneously cracked down.

Effective this week, requirements are tightened on day-trading, the technique by which speculators move into and out of a stock on the same day and count on rising prices to pay off their purchase and provide a profit as well. On the New York Stock Exchange, day-traders must now put up 70% of a stock's value within four days of purchase and sale, even if they have already sold it. On the American, they must ante up 70% beforehand. At the same time, margin accounts are being tightened. On new accounts, the minimum equity has been raised from $1,000 to $2,000.

Psychological Effect. Though the effect of such orders will be largely psychological, they might work well. Seldom have traders been so drawn by profit dreams rather than performance reality. Most notable example this month is Calumet & Hecla Inc., a 95-year-old Michigan copper company listed on the New York Stock Exchange. With investors excited by the possibilities of war in Viet Nam and shortages of war-essential copper at home, Calumet & Hecla two weeks ago touched off a run by announcing a 35 million-ton copper ore find in upper Michigan. Remembering quick profits generated by Texas Gulf Sulphur's Ontario copper strike two years ago, stock buyers put in so many orders for Calumet & Hecla that trading was suspended for six days, a record lapse on the Big Board. When trading resumed, 160,400 shares--or 7 1/2% of all Calumet & Hecla stock--changed hands in 21 minutes, and the stock jumped 25 points. Almost lost in the furor was a Calumet & Hecla disclaimer that the new find might not be mined for five years, at which time profits would still be uncertain.

Last week psychology prompted both exchanges to move toward another long-needed and laudable innovation. No average titillates investors faster than the Dow-Jones Industrial, a composite reading on 30 corporate stocks. The Dow-Jones, for all its historical value, can be grossly misleading; last week it rose 3.45 points in one day in a change dictated almost entirely by two of the 30 stocks, General Electric and Eastman Kodak. With prodding from President Johnson, the exchanges have finally been persuaded to compile indexes of their own. Where the Dow-Jones was originally limited to a list of 30 by human calculation, the new indexes will instantly computerize every stock on the market. Beginning this summer, the New York Stock Exchange will average out shifts in its 1,268 common stocks every half hour. The American Exchange will average its 1,045 stocks every hour, also provide a day's-end tabulation of the point spread by which all stocks rose or fell. How much, if at all, the new averages will sway speculators is unknown; they will at least provide the most comprehensive reading that any stock market has ever had.

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