Damage Survey

After a month of dispensing gloom, the stock market finally gave Wall Streeters something to smile about last week--the kind of smile that comes only because the pain is a little less painful than before. On Thursday, June 28, stock prices staged their biggest rally since the brief rebound right after May 28's Blue Monday. In the third largest one-day jump on record, the Dow-Jones industrial average zoomed 20.37 points to 557-35. Next day it rose again modestly to close the week at 561.28.

The rally spread right across the board; more than 1,000 of the 1,500 stocks listed on the New York Stock Exchange rose on Thursday alone. The ones that recovered most were the ones that had fallen the farthest: the battered glamour stocks. By closing time Friday, Polaroid had shot from 87! to 96, IBM from 320 to 339 1/4, Litton Industries from 79 1/4 to 92, Xerox Corp. from 97 3/4 to 112 5/8. Main force behind the resurgence was a burst of buying by the big army of short sellers (TIME, June 29), many of whom apparently decided that the time had finally come to take their profits.

Not So Positive. A fair number of market analysts predicted that the rally would continue for a while, but stock prices still have a long way to go before Blue Monday's losses are recouped. The main question preoccupying U.S. businessmen is whether Blue Monday has damaged or will damage the economy as a whole. Since the stock market is in a crisis of confidence about the future, businessmen watched closely the place where public confidence is most clearly reflected : consumer spending.

Since last fall, consumer spending has been the most invigorating force in the economy. It is less so now. Retail sales, which normally rise in June, did not do so this year; indications are that they ran below the May rate--which, in turn, did not show the usual increase over April.

Auto sales, which in five of the last seven years have reached their peak in June, were slower last month than they were in May--though still 20% above the June 1961 rate.

Send No Flowers. No one could yet establish any clear connection between consumer spending and the market slide, but Blue Monday was having direct consequences in some industries. The luxury trade was hurting most. At Perino's, an expense-account restaurant in Los Angeles, business was off 10%. The nationwide Ask Mr. Foster travel service noted a decline in sales of luxury tours. A Beverly Hills florist moaned: "People are still getting married, having babies and birthdays, but dammit, they're not saying it with flowers." (One jeweler reported a pickup in sales of diamonds, presumably to buyers who had decided that rocks are safer than stocks.) There were some other signs of consumer caution. Savings deposits in New York banks rose sharply in June, while applications for loans to buy expensive cars fell. A Boston banker reported that some of his customers were fattening their savings accounts with the proceeds of stock sales. In Detroit and Southern California, prospective home buyers were suddenly reluctant to tie themselves up in long mortgages. Says a California real estate man: "I've never seen anything like it. People who plunked down sizable deposits on new homes are walking away and leaving their deposits with the seller.

Buyer resistance is fierce." No Plus Factor. Despite these scattered signs of consumer hesitancy, New York's J. Carvel Lange, a specialist in forecasting consumer and financial trends, believes that sales of consumer goods "have been only marginally affected by the decline in the stock market." People not only continue to buy staples, but also such lower-priced luxuries as outboard motors and golf clubs. In fact, says Lange, for the past two months consumers have been buying goods faster than merchants have been replacing their stocks--which means that the economy may shortly benefit from an increase in merchants' orders to manufacturers. Nonetheless, as Vice President Tilford Gaines of Chicago's First National Bank points out, "The drop in the market so far this year has wiped out billions* of what investors, silly or not, consider their wealth. The effect of this may be only psychological, but it is still no plus factor."

* On the basis of Standard & Poor's 500 stock index, investors' paper losses on the market since Dec. 12 stood at $93.7 billion at the end of last week.

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