Deflation on Wall Street

After months of slow leak, the rest of the air went out of Wall Street last week--and it went with a whistle. In five days of heavy trading, stocks on the New York Stock Exchange lost $8.7 billion of their value. Thursday was the worst. As 3,300,000 shares changed hands, the Dow-Jones industrial average plummeted 9.69 points, the rail average 4.59 points in the sharpest break since Oct. 10. 1955, the week after President Eisenhower's heart attack. Though a strong surge on Friday checked the losses, the attrition left the market average at 441.16, nearly 80 points below the alltime high set in April 1956 and almost exactly where it stood in June 1955 before the latest bull-market rise.

Taxes & Satellites. Searching for reasons, Wall Street's traders had almost as many opinions as voices. Among other technical reasons for the break, they talked of a sudden burst of heavy selling to establish tax losses against gains made earlier, forced selling on margin accounts as prices declined beyond what traders could bear. Underlying all was the growing uncertainty about the course of the U.S. economy, and indeed the nation itself. Early announcements that the U.S. would not embark on a crash program to catch Soviet Russia's earth satellite had a depressing effect. Investors were increasingly worried about high interest rates that led economists to forecast a slight fourth-quarter decline in the rate (currently $37 billion annually) of expenditures for new plant and equipment, the first drop since the first quarter of 1955. The growing surplus of oil (see below) and the possibility of lower steel production and prices as Lukens Steel dropped the price of plate $8 a ton also had an unsettling effect.

Would the market drop lower still?

Many experts who originally expected the market to establish a floor at the 450 level only to see it tumble another ten points thought that it might slip as far as 430 on the average before starting back up. Said Harry Comer, market analyst for Wall Street's Paine, Webber, Jackson & Curtis: "Last week's unloading was not yet the old-fashioned selling climax which paves the way for a subsequent rise."

Consumers & Profits. Yet the market slump did not seem to bear much relationship to the economy as a whole. Despite Wall Street's bearishness. the U.S. consumer is buying more than ever. Estimates of 1957 retail business as a whole put the totals at a record $200 billion, up $8.5 billion from 1956'$ peak. Construction volume in September rose to $4.6 billion, up 4% over a year earlier. And the first earnings reports for 1957's third quarter showed that companies were still making record profits. American Telephone & Telegraph and International Business Machines both posted new highs. IBM with a nine-month net before taxes of $130 million, some $25 million more than in 1956. Taking note of stock-market jitters, the staff of the congressional Joint Economic Committee advised businessmen not to be unduly concerned over recent stock price movements. "Such movements in the past have not proved to be good indicators of prospective business conditions."

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