Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-09-25
INCENTIVE NEEDED
IN STOCK MARKET
Stocks IrreguIar-BondS Are
7 Strong-BuSiness News
Is Mixed.
By GEORGE r. HUGHES.
Special Dispatch TO The Star


NEW YORK, September 24.-Doubt
as to the future Of the security mar
kets has not been dissipated by their
action this week. Stocks have been
highly irregular, with a sharp set
hack and partial recovery. Bonds
have been strong. especially the high
grade ones. Business news is mixed.
There has been some seasonal i'm
provement to certain lines, but 1t does
not include the iron and steel trade.
Money is a trifie firmer.
The stock market is still weigh
ing the relative importance Of money
and business. For the long range
outlook the majority opinion is that
the money situation will prove the
more important factor, but that does
not prevent more attention being paid
to unsatisfactory profit margins, with
some intermediate effects on stock
quotations. Perhaps that is the clear
est deduction from the markets
course this week.
In the heavy selling which mark
ed the reaction of midweek the steel
shares. not excepting United States
Steel, were the most conspicuous suf-
ferers. Other industrial stocks at
times broke badly. but their losses
did not have the same effect on senti-
ment as did the weakness in the steels.
For a month or more the turn in
the steel trade has been confidently
predicted. but it has not come. United
States Steel Corporation is estimated
to be operating at about 65 per cent
OF capacity, and the average rate for
the Pittsburgh district is fixed around
SO per cent. No reliable estimate is
available of third-quarter earnings,
but they are not likely to be better
than those of the first half year.
Attention to Stock Yield.
That being the case. more attention
Is being paid to the yield that lead
ing industrials stocks affected at
present prices and present dividend
rates. If business justifies nothing
more than the prevailing scale of dis
bursements to shareholders, there
does not seem to be any good reason
why stocks should go higher when
the yield is little more than can be
had from the highest grade of bonds,
The usual answer to this argument
is two-fOld. In the first place. it Is
said that easy money will put stocks
up to unheard-of price levels. and, in
the second place it is urged that the
investment fashion of the moment is
all on the side of common stocks and
against bonds.
No one can say what easy money
may do after having witnessed the
stock market performances of the
past year, but it is not true that all
the investment resources are going
into stocks in disregard of bonds.
There is good reason to believe that
more funds are being shifted into the
bond market. The average price of
selected list of domestic bonds is
only small fraction below the high
of the year reached in May. For
eign bonds are approximately at their
high for all time. There has been
a decided renewal of interest in the
bond market this week and it would
not be surprising if it We're carried |
much further.
) AS to the money situation itself, |
the rate for call loans has hardened, |
but that is the only change. The |
Federal Reserve statement for the /
IL banks e0mbined shows fractional |
increase in the reserve ratio and that |
for the New York bank alone a rise /
from IT'S per cent a week ago to |
Sill per- cent this week. Total gold |
reserves are higher than a week ago |
and higher than they We're at the |
same time in 1925. Brokers' loans |
have reached a new peak, according |
to the Federal Reserve figures. and |
w
eral Motor stocks are issued next
week the total will be ever higher. |
All this, however, gives no worry to
spectators.
New Incentive Is Needed.
What the market really needs is
some new incentive. 1t seems inn
possible that this incentive will be
found in increased industrial profits
or in any other pronounced ease in
money. The profits are more apt to
be lower than higher and the money
outlook has been discounted for the
present at least. On the other hand
there is room for something new in
the railroad field. August earnings
as they are coming to hand are some
good and some not SO good but the
September figures are expected to
make a far better showing, especially |
in the Northwest. Moreover, railroad |
stocks have the advantage over in |
dustrials in two respects. Their |
average is farther below the high of
the year than is the case with the |
indugtrials and the yield on the rails
is more liberal.
Finally the large number of i'm |
portant cases awaiting decision by the |
]. c. c., should not be forgotten.
These include the Chesapeake & Ohio |
application for approval of stock con-
troll of the Erie and the Pere Mar
quette. They include the Loree
Southwestern merger proposition and
the matter of the Buffalo. Rochester
Il Pittsburgh lease. The Northern
Pacifc-Grea Northern plan is still be-
fore the commission. 1t is also time
some result was reached in the ST
Paul reorganization. While there has
been no intimation from Washington
as 20 when action will be taken in any
IL nitrkn