Reaction: Up & Mixed

President Johnson's State of the Union message set off reactions in the economic community that were dramatic and positive in some cases, cold and doubtful in others. The stock mar ket's response was hectic: trading records were broken, and an existing upward trend was solidly extended and reinforced. Businessmen and bankers had mixed feelings about tax surcharges, some criticism for the President's ex planation of tight-money problems, and broad concern that the Government is still spending too much domestically in the face of increased costs of the Viet Nam war.

On Wall Street the morning after the speech, more than 4,000,000 shares changed hands in the first hour of trading--an alltime record. Hardly had the exchange opened when the Dow-Jones industrial average was off by nearly twelve points. But then, in a dramatic turnaround, the tape fell behind--at one point it lagged by 16 minutes--the average moved up slowly, then burst to a close with a gain of 8.35. With 13,230,000 shares bought and sold, the day was the third busiest in Big Board history.*

Thursday was almost as frantic; 12,830,000 shares were exchanged, the day-old hourly trading record was smashed by 90,000 shares. The day's advance was 7.46 points, followed on Friday by a 5.18 gain. This brought the week's total increase to 26.39 points on a staggering volume of 53,391,425 shares. Thus the industrial index stood at 835.13, representing a rise of 49.44 points--or $29 billion in Big Board values--so far in 1967.

The bond market reacted just as ebulliently. In one of the strongest bond-buying days of the past decade, large new issues such as American Telephone & Telegraph's $250 million of debentures and Bethlehem Steel's $150 million were snapped up, and then immediately rose in price.

The stock and bond surges hardly signaled an expression of unalloyed enthusiasm about the State of the Union.

Rather they seemed to indicate general relief at an end to the long period of uncertainty about the Administration's economic intentions. Yet, while the suspense has ended, suspicion lingers on. Among the reactions to specific Johnson recommendations:

sb TAX SURCHARGES. While most businessmen considered the amount bear able, many criticized the President's timing. A typical reaction came from

Cris Dobbins, president of Colorado's Ideal Cement Co. and chairman of the Denver branch of the Federal Reserve's Tenth District. "Had the President tak en this tax action nine months ago," he said, "it would have been much better. Now it may hit us just at the time that the economy needs a stimulant." Few realized Johnson still is not wedded to a tax hike. Explained a White House economic adviser: "If things continue to slow down, a tax rise will not be necessary."

sb EASIER MONEY. Many businessmen resented the President's sideswipe about the Federal Reserve Board ("More money now seems to be available, and given the cooperation of the Federal Reserve System, which I so earnestly seek, I'm confident that this movement can continue"). Their reason: it was the Fed's tight-money policies that braked last year's inflation. Said the Bank of America's President Rudolph Peterson: "The implication that the private sector and the Federal Reserve Board were responsible for tight money and high interest rates was unfortunate. The fact is that Federal Government actions contributed substantially to both." Bowing to easier money, Minneapolis' little (assets: $41.7 million) National City Bank lowered its prime interest rate from 6% to 51%; Walter Heller, still one of Johnson's trusted economic ad visers, is a director of the bank. Major banks seemed unlikely to follow the Minneapolis lead until the demand for credit diminishes. When will that happen? No one knows, but the Administration is confident that Federal Reserve Chairman William McChesney Martin will cooperate. Said a Government economist: "If Martin fails to respond he'll be signing his name in blood."

sb GOVERNMENT SPENDING. William P.

Lear, chairman of Lear Jet Corp., expressed widespread sentiment about the President's guns-and-butter spending proposals. "Nobody much minds being taxed for the Viet Nam war," he said. "But let's pay for the war first, then go into these gigantic domestic programs." Added President Roger C. Damon of Boston's First National Bank: "Sooner or later the country must balance its outgo and its income. We've got to have margarine rather than butter."

-Busiest: Oct. 29, 1929, with 16,410,000 shares traded. Second busiest: May 29, 1962, when the market rallied during the '62 slump, with 14,746,000 shares traded and the Dow-Jones rising 27.03 points.

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