Building Back Confidence

The stock market perked up last week after the Federal Reserve Board made its long-awaited reduction in margin requirements from 90% to 70% (see Essay). The news came after the market had declined for the twelfth time in 13 trading sessions, sent the Dow-Jones industrial average up 14.97 points in two days to close at 616.73, ahead 6.86 for the week. Wall Street wondered just how long the rally would last. The market had dropped 45.15 points during the 13-day period, and last week's rise was interpreted as the response of increased investor buying power to depressed stock prices. But the Street was hopeful, buoyed by the prospects of a better second half-year, and by reading the Republican and Democratic platforms, both of which seemed to promise more rapid economic growth and increased defense spending.

Powerful Stimulant. Signs of second-half improvement are already visible. Steel orders show promise of increasing (see below). Auto sales in mid-July hit the fastest clip in four years, with dealers selling an average of 17,485 U.S.-built cars daily. For the first six months, the new compacts accounted for 25.1% of the market. Last week General Motors was readying its new compact, one of a new group of scaled-down big cars that will hit the 1961 market. Its name: the Oldsmobile F-85, a smaller version of its big-car brother with a new eight-cylinder, 145-h.p., water-cooled part-aluminum engine. Machine-tool orders in June totaled $43.2 million, a $5 million increase over May. June contracts for new construction rose $135 million over May, to $3,472,276,000, reported F. W. Dodge Corp., building-industry analysts. Since most of the construction should start immediately, said George Cline Smith, vice president of F. W. Dodge, "the pickup in contracts in June should provide a powerful business stimulant."

Another cheery note for 1960's second half is international trade. The National Foreign Trade Council forecast that U.S. exports (excluding military aid shipments) will exceed imports by $3.4 billion by the end of the year. During 1959 the surplus was just under $1 billion. Aided in particular by foreign sales of commercial aircraft, and of copper and iron and steel products, exports in 1960 are expected to total $18.8 billion, against imports of $15.4 billion. This export surplus will help the U.S.'s balance of payments, and the U.S. trade deficit is expected to drop from $3.8 billion to $2.5 billion.

All of this added up to a cheerful second-half prospect, in the eyes of Henry Clay Alexander, chairman of the Morgan Guaranty Trust Co. Said Alexander: "With the consumer buying as he is, and with inventories worked down further, I think there is a good chance for an improvement this fall, and that we may avoid turning in the direction of recession."

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