Break Through the Top?

For a brief period one day last week, stocks on the New York Exchange nudged through the alltime bull-market high of 521.05 on the Dow-Jones industrial average. They slipped a bit before the close, thus technically set no new record, since the closing prices are the ones that count. Three times in the last two years, stocks have marched up to the high set in April 1956, then backed away from it. At week's end Wall Streeters were split on whether the average would burst through and set a new record, or whether the market would slide into the "technical correction" that many an expert has expected for weeks.

Whether the market is at a record high depends on which yardstick is used. Like the Dow-Jones, Standard & Poor's index of 425 industrial stocks was close to a record at 52.06, only a shade under the alltime high of 52.18. On the other hand, the New York Times index, at 556.67, still had a good way to go to its 590.96. Moreover, the averages are heavily weighted in favor of leading blue chips, most of which have risen in the bull market. Thus they do not show that many another stock has declined. Some 40% of all stocks that were listed on the exchange in 1946--especially airlines, textiles and railroad equipment--are actually lower now than their 1946 peaks.

Much of the reason for the rise in the averages is improving business prospects and the fear of inflation, which has driven money from bonds into stocks. This has caused big investors to buy so heavily in such blue chips as Du Pont and U.S. Steel that Wall Streeters have started to complain about the "shortage" in these stocks. More and more institutions and pension funds are also going into the market, usually by buying blue chips. Last week trustees for the Bell System's $2.6 billion employees' fund announced that the fund would buy stocks for the first time, spend up to 10% of its total assets.

What has happened is that the supply of money pouring into blue chips has grown faster than the supply of stocks. While the total number of listed shares has increased from 1.8 billion to 4.9 billion since 1946, the increase is deceptive, has not really increased the floating supply of stock to that extent. Many of the new shares are the result of stock splits, and dividends go to those already holding the stock. Most investors who receive extra shares continue to hold them, thus keeping much of the added stock out of the market. Major mutual funds alone have increased from 74 in 1946 to 146; new money flowing into these funds has totaled more than $5.5 billion since 1946. Individual investors have also come into the market in increasing numbers; there are 8,630,000 today, v. 6,500,000 in 1952. Thus Wall Streeters, who traditionally measure stocks by earnings and dividends, are now using a new factor--the supply of new money--to determine what stocks will do next.

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