Panic in the Markets

Week 1 of Hitler's war against the West was too frantic, and passed too quickly, for its real effect on U. S. business to become visible. But the first impulse of many a U. S. businessman was to get liquid and cancel his commitments. A selling panic hit the stock and commodity markets. But Hitler's victories also started a U. S. National Defense boom towards the blueprint stage.

Wall St. For World War ll's first eight months, the New York Stock Exchange refused to get excited. Speculative animal spirits in the first week of September carried the Dow-Jones industrials average up to only 157.77-below sodden 1938's high (158.41). From then till the first week of May, the market dispiritedly backed & filled between 155 and 145. By staying horizontal, the market earned great forecasting kudos. If U. S. businessmen had followed it, they would not have permitted production to jump out of line with expectations, and might have avoided 1940's corrective recession.

Last week the market went vertical with a bang down. Its forecast changed from ''the same" to "civilization is going up the flue with The Netherlands and Belgium." To the average U. S. market fan, who starts and stops major swings, this translated itself into an imperative desire for cash. The scramble to liquidate stocks resulted in the sale of 17,000,000 shares last week, 11,500,000 more than War ll's 36 weeks' average. Prices dropped from 144.85 to 128.27 in the first two days.

Presumably the reasoning behind this drastic behavior was that : 1 ) Germany's smashing offensive portended a quick peace, which would abort the aircraft and lesser export booms, 2) a Germanized Europe and axified world would end all extra-hemispheric trade, close European markets to North & South American commodities. Another bearish factor was technical: margin calls. When the selling started, swarms of little fellows, others not so little, were forced to raise a few hundred dollars with which to keep their positions in war babies like North American Aviation (down 8 7/8 points by Tuesday's close to 15) and found it by dumping nonwar babies like Chrysler (down 15 3/8 points to 66 1/8), Sears, Roebuck (down 5 1/2 points to 77 1/2) for what they could get.

On the third day the market stopped to catch its breath, rub its eyes, see whether Europe really was in the mess the ticker showed. On that day 3,770,000 shares were traded, tops for the week. Net result: a rise of 0.81 in the averages, which stopped new margin calls, but sucked back into the market many a small margin trader.

The following day the market clicked to a new idea when Franklin Delano Roosevelt brought down both Houses of Congress at the beginning of the last hour of trading in Wall Street by calling for $1,182,000,000 of new national defense money. Traders were struck by another thought: that the worse conditions become in Europe, the more feverish U. S. business activity might become under the stimulus of national defense expenditures. The market rose 4.67 points from the week's previous low point. Up were such national defense-or-export beneficiaries as

Bethlehem Steel (up 7 5/8 points to 84), Lockheed Aircraft (up 7 5/8 points to 37 3/4).

But in so grueling a week, two ideas were too much for the market to absorb. Soon Hitler seemed to be marching across France. Out of Washington the ticker carried stories of peace before the end of summer. Down went prices again, gaining momentum. The week ended with heavy selling that broke the industrials eight points to 122.43. Export and war-baby stocks were not the only casualties. Fear spread that closing of European markets would depress U. S. income, especially of farmers, that any subsequent national defense boom would develop at the expense of general consumer purchasing power & freedom to use it. Down sharply for the week were consumer-goods stocks like Chrysler (19 3/8 points to 62 1/8), General Foods (7 points to 41), Schenley (4 3/8 points to 8 1/4).

So frightful to Wall Street was the spectacle of Hitler's revolution-on-the-march that no amount of advance discounting of Allied defeats seemed likely to forestall a fresh panic with each German victory, although the national defense program-for the first time of mass-production proportions-seemed to promise a capital goods boom. New Deal economists in Washington calculated that 1940-41 national defense spending should boost the Federal Reserve Production Index as high as 145, from its present 103.

Meanwhile, at last week's end, many prime equities fell to apparent bargain levels. Examples: Du Pont (selling around 160 and paying $7.50), Eastman Kodak (selling around 140 and paying $6), Bethlehem Steel (selling under 80 and paying $3.75), United Aircraft (selling at 48 and paying $2.75), nearly a 5% rate of return on the cream of U. S. business. Traders with cash balanced the temptation to snap up these bargains against the thought that fresh Allied disasters might well knock the market down to still more attractive bargain levels before defense spending takes hold.

Commodities. That national defense spending would do consumer goods little good was the opinion of last week's commodity markets. Most prices fell. Worst sufferer was a consumer and export commodity-wheat. July futures dropped from $1.08 1/2 a bushel to 79-c- with such breath-taking speed that Secretary of Agriculture Henry Wallace asked the Exchanges to limit trading for the third time since the turn of the century, set Saturday's close as the floor under which no trading would be permitted. Chicago complied by pegging the price, Kansas City and others followed suit. Another casualty was cotton: July futures down 10% to 9.11-c-. Moody's Index of 15 spot prices fell 7.1% during the week, the sharpest percentage decline in its history. Evidently manufacturers of consumer goods, who buy their raw materials in these exchanges, feared that a long trend against them had set in.

But a different story was told by those strategic commodities (especially rubber & tin) of which the U. S. is short and may be shorter at the whim of Japan. Spot rubber held during the worst of the panic "at around 23-c-, ended the week down only 2AND because of general liquidating pressure.

Spot tin opened the week at 55-c-, closed at 54-c-.

Most significant of all was the behavior of the scrap steel market. It forgot all about its normal 20% dependence on exports, remembered only that it grows scarce when heavy industry booms, countered the week's trend by rising 79-c- to $17.62 a ton.

This file is automatically generated by a robot program, so reader's discretion is required.