Downward Shift

As Washington's battle against price rises intensified, Wall Street last week finally seemed to get the message. After meandering since January, the stock market suffered its worst weekly loss in 21 years. The Dow-Jones industrial average declined by 35 points, to 917--the lowest level since last September. On the New York Stock Exchange, declines outnumbered advances by 3 to 1. On the American Exchange, prices dropped by an average of 5%. The slide continued until the four-day trading week, abbreviated for Washington's Birthday, ended mercifully on Thursday.

The sell-off signaled something of a shift in investor psychology. The feeling is common that the Government's deflationary measures may finally succeed in constricting the economy--an achievement that would inevitably depress corporate profits. Two weeks ago, Treasury Secretary David Kennedy began warning openly, although the issue was never much in doubt, that the 10% tax surcharge may have to be extended a full year beyond its June 30 expiration. Last week Paul McCracken, the President's chief economist, warned the Joint Congressional Economic Committee that current tight-money policies may have to be maintained throughout 1969. It is now considered quite possible that commercial banks will once again raise the prime interest rate, which is already at 7%. Any further increase would make it that much costlier for companies to carry out capital-spending plans.

Fever Symptom. The public and the professionals also seem increasingly uneasy about the "tone" or "quality" of the market. The much publicized mess in the back offices of brokerage houses, which are tangled in paper, has done little to inspire confidence in the effectiveness of Wall Street's management. , In addition, the fast rise of prices of new issues, many of which have climbed to premiums despite meager or non-existent earnings, is a symptom of dangerous speculative fever.

The recent pressures on the conglomerate corporations have also helped reduce investor enthusiasm. Congress and several Government agencies have begun to investigate these acquisitive companies with a view toward eliminating the tax advantages that help them to make mergers (TIME, Feb. 21). A growing number of Wall Street analysts are beginning to suspect that many conglomerates have been overpriced. One of the most controversial conglomerates of all is debt-ridden Ling-Temco-Vought, which plans to reduce its controlling interest in Braniff Airlines from 67% to 55% and sell off some other assets, including all of its holdings in National Car Rental. L.T.V.'s stock declined last week by 81 points, to a 1968-69 low of 741, and the shares of many other popular conglomerates also suffered substantial losses.

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