Casting a Vote of Less Confidence

Suddenly, it seemed, the stock market had become a kind of political poll, one that pointed down, down, down --down on Ford's chances of staying in the White House, down on Carter's populist economics, and down, or at least doubtful, on the strength of the nation's economic recovery. As the election approached and investors caught the jitters, the calm but healthy bull market that developed with the onset of recovery last year seemed to have been taken over by the bears. In five days of busy trading last week, the 30 stocks of the Dow Jones industrial average, still the most widely watched Wall Street barometer, plunged 15 points. The index touched 932, its lowest level since January, before picking up again to close the week at 937.

All together, the Dow had worried down 90 points since the slide began in mid-September. That represented an 8% drop in share values inside of a month, which translates into a paper loss of $105 billion for the millions of Americans who own stocks directly or through mutual funds and pension funds. Among the biggest losers have been stocks in such basic industries as metals, chemicals and paper, which had been market leaders for most of the year. IBM closed last week at 262, down 20 points since the middle of September. In the same period, Du Pont fell from 129 to 118, Dow Chemical from 45 to 40, and General Dynamics from 54 to 46.

Another casualty has been the euphoric mood that gripped the market in the early part of the year. Back then, stock prices rose on the crest of a robust 9%-plus economic growth rate. For a while, stock analysts were happily forecasting an "upside breakout" that would lead the market to a new alltime high above the January 1973 peak of 1051.70. Though business began to slow in April, economists in and out of Government remained convinced that it was just a temporary lull. Investors' expectations remained high, and the Dow hovered around 1000 through most of the summer.

No Waves. Then Carter emerged victorious from the Democratic primary wars, talking of using taxes to redistribute the nation's wealth, creating standby wage-price controls, launching expensive new social programs and generally impressing Wall Street as being antibusiness. Though far from satisfied with Ford, investors prefer him to Carter, regarding the President as a man likely to follow a steady course and not make unwanted waves. As Carter's campaign gained, stumbled, then gained again, Wall Street marked time, waiting to see if Ford could catch up.

On top of the political uncertainty, the so-called pause in the recovery has proved far more persistent than most experts expected. In the April-June period, the economy's rate of expansion narrowed to a less boomy but still acceptable 4.5%, but inflation rose to an annual rate of 6%, up from about 3% in the first quarter. Since then, moreover, almost all the major indicators have been pointing to an even slower rate of growth in the third quarter. Though official Government estimates on expansion for the period will not be out until this week, most economists have already scaled down their earlier growth forecasts from 4% to 3%, or less. All at once fear settled like a fall frost on Wall Street, chilling investor confidence and sending stock prices spiraling downward in the worst plunge of the year.

As usual, many investors are overreacting to what could still be a temporary, if prolonged, lull in business and an overwrought perception of what a Carter Administration might mean for business. Says Newton Zinder, chief economist of E.F. Hutton: "The outlook for the market still appears good, though it is lower than most expectations."

He has a point. As recently as Sept. 21, when the Dow average nosed up to 1015--a three-year high--stocks did not seem overpriced, as measured by their price-earnings ratios. Then, too, interest rates have been behaving, though less as a result of Federal Reserve Board money policies than as a consequence of sluggish loan demand. The prime lending rate charged by banks to businessmen, which stood at 7 1/4 last January, has bobbed up and down in a narrow range through most of the year and is now at 6 3/4.

In addition, according to Harold Ehrlich, president of Bernstein-Macaulay, a firm that specializes in managing pension funds, much of Wall Street's hand-wringing over a possible Carter victory is not historically justified. Says Ehrlich: "The market has generally done better under Democrats than Republicans because economic growth under Democrats is usually faster, which has generally meant a faster growth of corporate profits." For example, in the first year of every Democratic Administration since 1948, the stock market rose an average of 15.6%; in the first year of every Republican Administration since then, stocks have declined by an average of 11.5%.

Still, there is cause for edginess. As Bud Simons, research chief of Weeden & Co., notes, "We will not get back to 1000 until we get some signs that the economy is improving." There is little chance of that happening, at least in the next few weeks. Thus some brokers now believe that stock prices will continue to slip, dragging the Dow down to a low of 900 or so before Election Day. Indeed, some analysts believe that such a drop might be a healthy correction that would leave the market poised for a new and sustained upward march later on. For the moment, however, the state of the market can offer little solace to Ford, Carter or the investing public.

This file is automatically generated by a robot program, so viewer discretion is required.