Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-06-29
SUSTAINED STRENGTH IS SHOWN
BY STOCKS IN PAST SIX MONTHS
Average Price of All Shares Listed Goes to
New High Record-Rails Share
Big Advance.

merce Commission. persuaded the in
vestment and speculative public that
the opportunities for profit in rails
and stocks were greater than
analysis of earnings alone would indi.
cate. Probably this was one of the
reasons why successive setbacks in
the merger field were followed by so
brief a reaction in railroad stocks.
The wheeling Incident"
The ability of the market to with.
stand shocks was aptly illustrated in
the Wheeling & Lake Erie incident in
February. The rapid rise in that
stock due to the purchases of three
large systems encouraged a short
interest which found itself trapped
when it discovered what was really
going on. The break of ca points in
three days that ensued when the
corner was broken was reminiscent
of the classic Northern Pacific episode.
1t was important only as 1t revealed
the underlying strength of the market
position. The market did stagger for
day or so, but it quickly recovered
itself, showing that the forces work
ing for the advance were too strong
to be checkmated.
Influences which operated powerful.
ly in the market were the attitudes
of the directors of United States Steel
and Of General Motors. The confidence
these leaders in the industrial field
displayed in the dividend action they
took on their respective stocks did
much to persuade spectators that the
business skies were clear. 1t was late
in 1926 that the steel directors recon-.
| mended the 40 per cent stock dividend,
an action which was ratified by the
stockholders in April of this year,
Continuation of the 81 rate on the
additional stock, however, was the
important development.
Along the same line was the in
crease of the regular rate on General
Motors to So in March and the extra
dividends of 81 in January and of 50
in May. Willingness to pass along a
generous share of the profits to stock
holders was interpreted by the market
as highly favorable.
The Inevitable Turn.
In the first place, prices are higher
now than they were six months ago
ana no nric1 movement continues in.
definitely in one direction. Some day
there must be turn, and that Gay is
SIX months nearer now than it was on
New Years. Doubtless this is the
least important feature, but 1t de-
serves consideration.
Secondly, the bull market of 1927 to
date has been founded on easy money.
No abundant credit is, first of all.
reflected in the current quotations for
investment bonds. The first week of
January New York City sold, on a
basis more favorable to the borrower
| than In years past, n large block of its
corporate stock. This event was cor.
rectly hailed as indicative of the trend
OF investment securities, and had an
Immediately stimulating effect upon
stocks.
The same inference was drawn from
the United States Governments oper-
atoms in the money market The
long term Treasury obligations sold at
the highest for all time in March. Re-
| peatedly 1t was pointed out that the
| low yields Obtainable on high-grade
| bonds were diverting investment funds
to the stock market. This condition
obtained practically without Interrupt
ton up to or about the first of June,
and then there was a sudden change.
The bond market stopped going up.
New offerings came so fast that de-
| mand was inadequate to absorb them,
unsold issues accumulated on the
shelves of dealers and finally quota
tons for seasoned bonds began to
yield. AT the same time there was
rapid expansion in brokers' loans,
which it was explained was due 20
moneys needed to carry theje large
bond fiotations. In so far. then, as
the upward movement in stocks was
corollary to that in bonds. the stu
alton is just the reverse now from
what 1t was six months ago.
Rail Outlook Less Promising.
railroad stocks. One of three reasons
has been responsible for the improve.
ment in this group so far. these are:
First, better earnings; second, expec-
tations of larger dividends, and third,
con .olidation schemes.
The probabilities are that during
the remainder OF 1927 the first of
these influences will not be as prom
inent. Wage increases and higher
expenses are likely to cut down net
income to some extent. There will
be individual roads able to report
higher earnings per share, but they
will be exceptions.
This is not to say railroad income
is going to decline seriously. Moth.
ing of that kind is in sight, but
stock market speculation looks to the
future. not the past. There is not
so much to discount" as the Wall
street phrase is. in the railway earn
lngs situation as there was.
The dividend increases Of the year
to date already have been referred
TO. How many more are yet to come?
How many initial declarations are vet
to be made? There are only a few
large systems not now paying some
tning on their stock. among them
being the Missouri Pacific, New Haven
Al.
Missopri Pacific Is in a position to do
anything for its shareholders, and
that only for the owners of the pre-
TERED. The Rock Island is expected
to raise its rate sooner or later, and
possibly the Baltimore & Ohio.
although they may not come until
1928. In all these cases the market
price of the stocks concerned must
already have reflected part Of the pos
SibilitieS.
Now, turning to the merger situa.
ton. the striking fact is that the In
terstate Commerce Commission still
has to pass favorably upon any one
or the propositions submitted TO il.
Advances in railroad stocks based on
consolidation prospects so far. have
been representative of a faith that
Is yet to be justified. That the mar
ket has reached the danger stage in
this respect is amply demonstrated by
the way in which any sort OF a COM
bination rumor gains Il hearing in
speculative quarters.
There have been some unfavorable
turns In the Industrial situation in
the last few months also. which must
be taken into account. There Is seri-
Gus overproduction in oil. no recovery
In copper. a new setback In sugar and
continued depression in some textiles.
The stocks of companies I'm these
trades have been adversely affected.
but not the general market. There
is no certainty, however, that these
troubles may not spread.
1t is not the intention to forecast
a major market decline in the fore
going Summing-up II Is simpIv IN