Spring Slide

Wall Street's bull market has been faltering ever since it hit its 20-year peak on May 3. Last week, the bull did more than falter; it fell. At midweek a wave of selling struck the market just before noon, drove some stocks down as much as six points. Before that day's close, the market got back some of its losses, and it held steady to week's end. But its old, heady vigor seemed to be gone.

Would there now be a big drop? Wall Street's chartists conceded that the bull had taken quite a tumble, from the 263.13 peak of the Dow-Jones industrial average to last week's intraday low of 241.89. But they took cheer from the fact that every time the market approached the lows reached in March, new buyers rushed in and pushed it up. Since the market had "tested" the old lows and held, the chartists thought that it could go up again.

Others, ignoring the charts, thought the market had plenty of reason for queasiness; it was simply reflecting the uneasy state of U.S. business. The plain fact was that business was sagging, and the reasons were equally plain. Nobody put them more sharply than General Mills' Chairman Harry A. Bullis: "This slackening was caused by three factors every man and woman and high school boy or girl knows about--the recent heavy income-tax collections, the bite of credit restrictions and the unusually large accumulated inventories left when the big bad wolf of scare-buying sneaked back to his lair." Bullis was not alarmed. "Except for tightened credit," said he, "these deflationary forces should end about the first of July."

Log Jam. But would the trouble end that quickly? Many worried businessmen doubted it. Auto dealers, cursing Regulation W's strictures on installment credit, hunted for buyers, saw their stocks of new cars mount to more than 400,000, a full month's supply. Hudson had so many unsold cars backed up that they overflowed into Detroit's State Fair Grounds. Last week it shut down for two weeks and laid off 10,000 men to let sales catch up.

Television makers were harder hit. The supply of unsold sets had mounted until Manhattan saw a rash of auction sales, where dealers tried to move sets, frequently at less than cost. To stop the pileup, makers had trimmed their weekly output from last November's rate of 218,378 sets to 82,224. But in the same period their stocks had mounted from 53,070 sets to 505,848. Sales of washing machines, refrigerators and other appliances lagged as much as 50%.

U.S. builders complained that mortgage money had all but dried up, because of the Government's "tighter money" policy. The Federal Reserve Board, with its Regulation X, had sought to trim 1951's new housing starts to 800,000, but builders cried that they might well fall below 700,000, and predicted imminent unemployment in the building trades. Even steelmen caught the contagion, began worrying about a possible glut of steel. Said U.S. Steel's President Benjamin F. Fairless: "That period may be nearer than most people think."

Unquestionably, business was hard hit by credit restrictions. But that had been their purpose -- to cut buying. Many businessmen, notably auto dealers, could also blame themselves for poor business ; they had let their selling skills grow rusty.

Tax Bite. Wall Streeters did not doubt that mushy sales and heavy taxes would trim many a company's profits in 1951's last half. But they also knew that dividends have long been small compared to profits. Thus, even if profits drop, they seemed certain to be high enough to maintain current dividends in most cases which was reason enough to hang on to stocks. Moreover, with $26 billion in defense orders let so far this year, the economy was only beginning to feel the full impact of rearmament. As rearmament's mounting demands brought inevitable cutbacks in auto, television and appliance production, the chances were that the momentary glut of goods now on the market would quickly disappear.

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