Rallying Round the Blue Chips

Despite spotty corporate earnings reports and new talk about a tax increase, the unmistakable snort of the bull reverberated last week in the stock market. For the second week in a row, prices surged ahead and trading volume on the New York Stock Exchange climbed to a new record, 58,194,770 shares, an avalanche that strained the facilities of banks and brokerage houses. The Big Board's year-old composite index of all common-stock issues on three straight days eclipsed its May 8 peak of $51.93, reaching $52.18 at week's end. Reflecting a suddenly renewed popularity among blue-chip issues, the better-known Dow-Jones industrial average rose every day for a 27.51-point gain on the week to 909.56, only .07 points below its 1967 high. Since July 1, the Dow barometer has risen nearly 50 points, or 5.8%, erasing more than two-thirds of its 1966 decline.

Following the Blueprint. Much of the fuel for last week's advance came from the Government's report that the total U.S. output of goods and services increased $3.9 billion (adjusted for price inflation) during the second quarter. The nation's economy thus grew at a true annual rate of 21% over the last three months, a striking improvement over the troubled first quarter. Other economic indicators buttressed the new buoyant feeling. June housing starts crept up 0.3% from May's rate of 1.3 million units a year; new durable-goods orders in June stayed well above their depressed levels of early 1967.

Still, Washington economy watchers were in some disagreement as to how far and how fast the economy is likely to rise amid growing labor unrest and slightly rising unemployment, and with the nation's factories running at 84.7% of capacity, the lowest figure in three years. "The recovery is not going to be as prompt and vigorous as we thought," says a senior Federal Reserve Board economist. To the White House Council of Economic Advisers, the rebound looks "very satisfying--right on track." Taking a middling view, Treasury Under Secretary Joseph Barr said: "The economy is following our blueprint, but it is about two months behind where we thought it would be."

Not even President Johnson's renewed call last week for a 6% surcharge on corporate and personal income taxes--which would further erode corporate profits--seemed to curb investors' appetite for industrial stocks. While some high-flying issues floundered--among them Xerox, Polaroid, Itek, Teledyne and Fairchild Camera--old favorites moved up nicely. General Motors gained $5.25, to $84.88, and Bethlehem Steel, Goodyear, Standard Oil of California, Chrysler, and General Electric also gained substantially. American Telephone & Telegraph rose 88-c- a share to $53 after the company announced that it will fight a Federal Communications Commission finding that it is making too much money for a public utility. Long among the most depressed of the blue chips, A.T. & T. shares had suffered another $2 billion in paper losses early this month after the FCC ruling, and even at week's end remained nearly a third, or $ 11 billion, below their 1964 peak.

Some Disparities. The reviving fortunes of the blue chips reduced--but scarcely erased--this year's disparities among Wall Street yardsticks. The Dow-Jones industrial average, the oldest (71 years) and by far the most widely accepted gauge of stock performance, has lagged far behind every broader index. At week's end, the D.J. industrial average had risen 16% so far this year, but still remained well below its alltime high of 995.15 on Feb. 9, 1966. In reaching its new peak, the New York Stock Exchange index has gained 22% this year. Standard & Poor's 500-stock index comes out be tween these two; it has risen 18%, to $94.04--within a whisker of its $94.58 record set last May 8. Over-the-counter stocks, as measured by the National Quotation Bureau's industrial average, have jumped 42% this year, and the American Stock Exchange's comprehensive index is up 52%.

In dollars, the 30 Dow-Jones industrial stocks account for one-third of the total value of all 1,262 common issues listed on the New York Stock Exchange. Its relatively restrained rise has mirrored investors' doubts about the profit prospects of some of the D.J. giants in currently or recently troubled fields: steel (U.S. and Bethlehem Steel), autos (General Motors and Chrysler), oils (Texaco, Standard of California and Jersey Standard), chemicals (Du Pont, Union Carbide and Allied Chemical) and, of course, A.T. & T., the world's largest corporation. Because all the Dow industrials have large numbers of shares outstanding, it takes substantial sums from investors to push their prices up more than a mite. Many Wall Street analysts thus took last week's recovery as a signal of renewed confidence by big institutional investors in basic industry. If the rally continues, its momentum could well give the whole economy a psychological lift.

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