What Breed of Animal?

Like the state of the whole U.S. economy, the stock market last week was something of a puzzle. At week's beginning it continued the decline of the previous week in a heavy sell-off that pared 16 points from the Dow-Jones industrial average in three days of heavy trading.

Then it turned around and headed upward, at week's end staged a rally that pushed the industrials up 9.55 points--to 580.14--in the biggest one-day gain in nine weeks.

Bull or Bear? Was this the end of the slide, or only a breather in the midst of a big bear market? Sidney Lurie of Josephthal & Co. shot off a wire at midweek to trusts and big customers reading: "Seems to me we're days if not hours away from a real trading bottom. I'd watch for buys.

Don't forget, the clamming is always best at low tide." Said Walston & Co.'s Edmund Tabell: "I suspect we're getting ready for a rally. The bear market will be quick to come to an end." Even the Dow theorists, who believe that stocks have been in a bear market for months, could not agree on what is going on. Dow Specialist Richard Russell believes that the market will go much lower. But E. George Schaefer, publisher of the Dow Theory Trader, says that a foundation has been laid for "a surprisingly healthy upsurge into late 1960 and 1961."

Whether an investor found himself in a bear market or a bull market depended very much on what stocks he owned. The Dow-Jones industrial average, composed of only 30 stocks out of 1,800, helps give a day-to-day picture of the market's volatility, but fails to reflect accurately the long-run fate of many stocks. Last week the industrial average was down 15% from its alltime high in January of this year, was at the same level as December 1958. But some stocks, such as food and drugs, which face a bright future in an expanding population, are still in a lusty bull market, are well above the levels reached when the industrial average reached its peak (see chart). For other stocks, a bear market has existed for as long as four years, and they have dropped much farther than the average.

Advance Reaction. Shares in such industries as aluminum, autos, chemicals, coppers, oils, papers, tires and rubbers and rails hit alltime highs in 1956--and have been going down ever since. Others, such as steels and airlines, have been steadily slipping since their 1959 highs. They have reached the point where they resist further pressure, appear to have hit bottom. To many individual and institutional investors, such stocks look like buys.

Many Wall Streeters believe that the market has already discounted a mild recession, just as it got ready for the last two well in advance. In each, the market hit its lows when the recession had just started, flopped about for a time, then took off on a sustained rise even though the economy continued to decline for some months. By the time the recessions were nearing their ends, the market had already pushed well upward. Streeters feel that the market is likely to ignore the pattern of the past only if later facts clearly show that a major recession is on the way.

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