No Season to Be Jolly

In the stock market, December opened as anything but the accustomed month of year-end price rallies and fat Christmas bonuses. The Dow-Jones industrial average has plunged 70 points in less than a month. Last week it broke below the 800 mark, at which all earlier slides in 1969 had been stopped. It closed at 793, the lowest level in nearly three years. For investors who had put their faith in some popular blue chips, the story was even glummer. During the week, General Electric stock sold at its lowest price since 1963; Union Carbide was the lowest since 1954, and Allied Chemical the lowest since 1950.

The drop in the Dow-Jones to below 800, which was widely heralded as an important psychological resistance point, did not touch off any heavy selling. Still, brokers drew little comfort from that fact. Some would have preferred a burst of aggressive selling that might have cleaned out the pessimists and set the stage for a price rally--instead of the fairly steady, day-by-day erosion of prices on fairly light trading volume. Prices were weak principally because investors had the feeling that inflation was not being defeated and that the Government would have to continue strangling credit and pursuing other constrictive policies that risk a recession.

Unthinkable Rate. A strong case can be made that the Government is overdoing its credit tightness and that the time has come for a change. Last week, however, a Federal Reserve official said that the board is persisting with its year-old policies. Interest rates reached yet another new high when an issue of top-rated Bell Telephone System bonds sold at 9.1%. Such a rate would have been unthinkable not long ago. The U.S. may be entering an unprecedented, fairly prolonged period of high interest rates.

For next year, economists see continuing inflation, though at a slower rate. Arthur Okun, former chief of the Council of Economic Advisers, summarizes the consensus: 1970 shapes up as what could be called a 2-4-6 year --meaning 2% real growth, plus 4% inflationary growth, which would add up to a 6% gain in the gross national product. Unemployment, which unexpectedly fell in November by a half-point, to 3.4%, is expected to rise to about 41%. By Okun's reckoning, corporate profits before taxes will decline 5% or 10%, but if Congress reduces taxes as expected (see THE NATION), the decline in net profits will be only 2% to 4%. That is not quite as bleak a picture as some Wall Streeters have been expecting. Even so, the continuing combination of inflation and slow growth gives investors little pre-Christmas economic news to rest them merry.

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