Dyspeptic Mood

As the stock market last week continued its decline, businessmen lost some of their exuberance about the course of the economy. The new mood was not based on the potential of the world's most powerful economy, or even on its present performance. It was an inevitable part of the psychology of the U.S. boom: too much good news, like too much rich food, can produce a vague, queasy dyspepsia.

Last year the stock market often ignored bad news; the Dow-Jones industrial average reached a new high during the steel strike. Now, despite good earnings, hefty dividend hikes (see Earnings) and predictions of peak production, the market went its own morose way; the Dow-Jones industrial average dropped 23.23 points to end the week at 622.62. Auto stocks plummeted, for example, largely because of some doubt that the industry will run up the predicted 7,000,000-car year. Yet it seemed clearly headed for at least a 6,500,000-car year, the second biggest in history. Auto production in January hit a record for the month (see below).

Overdone Problem. Behind the mood is an uneasy fear of deflation, which has ironically replaced the recent fears of inflation. Part of the new fear is the result of President Eisenhower's predicted budget surplus of $4.2 billion for fiscal 1961 and the promise of further surpluses, which can be deflationary. Whether or not the Administration actually realizes its 1961 surplus will not be known for at least a year, but the very possibility has already had a psychological effect. The stock market is also afraid of tight money, with its nipping effect on many areas, notably housing starts; yet the squeeze appears to be easing. Moreover, if the Administration does get its surplus, interest rates would probably drop, since the Treasury would no longer have to go to the market to raise new money.

Such factors have alerted many people to the fact that worry about inflation has been overdone. The U.S., which has had an average price rise of about 2 1/2% for the last several years, will probably have a 12% rise this year.

Selling Climax? The stock market, on the other hand, tries to reflect not what is happening but what will happen--though, as a prophet, it has been proved wrong as often as right. Some curbstone economists are even looking ahead to "the next recession,'' variously estimated to occur in 1961 or 1962, and trying to get into their storm cellars early.

The market's drifting down has been not so much from selling as from lack of buying; average daily volume last week was 2.8 million shares, very low for a week's decline of 23 points. The market is so thin that a sale of a few hundred shares of some stocks can drive the stocks down several points. The drift has moved many professionals to sit on the sidelines and wait for a selling climax. In market folklore, a heavy trading day with the ticker running late on the down side is just the thing to clean out the fainthearted in one fell swoop, stop the market from dribbling lower every day. Since such a clean-out is impossible in the economy as a whole, the pessimists will have to bear their mood of uneasiness patiently until the dyspepsia passes.

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