Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-10-26
RECOVERY IN STOCK
MARKET IS LAID TO
SPECULATIVE URGE
Extent OF Long Decline Has
Improved Technical Con-
dition OF List.
SENTIMENT IS IMPROVED
BY GAIN IN COMMODITIES
Statements Of Business Leaders
Help to Restore Public
Confidence.
BY CHARLES r. sPEARE.
Special pissateh to tn. star.

Special Dissatch to The Star
NEW YORK, October 25.-SpecuIa-
tive instinct prompted people to buy
stocks this week when the action Of
the market gave as little assurance of
It's stability as at any time this wear and
IN spite Of the depressed state of in
dustrial and railroad affairs. Their
intuition may have been correct or 1t
may later be found to have been
expensive.
Certain 1t Is that demand for secur-
tiles has increased not only where 1t
reflects professional commitments but
as 1t has developed among those who
have withheld their support for months
and are now, with discrimination, In
vesting their capital in sound equities.
Consequently, the deeper currents
that have been flowing In the market
have ben more Significant than those on
It's surface. Cash purchases have been
the largest since last November. The
technical strength Of the stock list hsb
been proved by its resistance to several
severe tests during the week, such as
the collapse on Thursday in the Van
SWer1ngen issues, and the calm manner
In which fresh declines in commodity
groups, as metals, oil and steel, and
wretched exhibits Of corporation earn
ings In the September quarter have
been received.
Extent Of Price Decline.
There are several reasonable expIana-
lions for this change in sentiment. The
first Is the extent and duration Of the
decline. On Wednesday the Standard
statistics weighted average of 4O4
stocks was exactly on q par with the
average OF high and low prices In 1927.
Taking shorter period of reckoning,
we find that on the same day the Wall
Street Journal average of industrial
shares was down so points from the
September 10 level. while railroad and
public utility shares were from 20 to
az points off In six weeks.
Although the September October de.
cline was not so expensive as that in
May-June, 1t started from a consider
ably lower average and continued over
longer term and 50 was more de-
structive OF confidence. At the begin.
ming Of this week nearly IS per cent
OF more than 1000 issues listed on the
New York Stock Exchange were at the
lowest prices Of the year
In earlier stock market declines the
downward movement has terminated at
the end of IS months In others it has
run for II months. The accepted high
average of the 1929 market was that Of
September 8. So the slump this year
has already overrun by several weeks
that OF other similar periods How
ever, many students have claimed that
we were in bear market between Feb
ruary and September, 1929, and that,
while the high-priced industrial and
public utilities were reaching their. tops
IN the Summer, scores Of others had
been dropping for eight months.
The extent and duration of the de.
cline, therefore, give basis for consid.
Grafton Of the stronger technical posi-
ton of the market. On what may be
called its sentimental side 1t has gained
favor recently
Whenever the average yield on COM
mon stocks rises above that on high
grade bonds, there will be increased
buying of stocks, independent of con-
ditions surrounding business or the
stock market just now the yield on
stocks is approximately one-half Of per
cent greater than on bonds. It Is not
so high as In 1921, for prices are not
so low as then nor should they be.
An estimate was made recently that
In the depression Of o decade ago
American corporations paid dividends
that were not fully earned amounting
to less than one-third the total that
will be distributed this year and has
been earned
While copper metal has declined to
a point which precludes a profit to
any but the low cost producers, cot
ton has rallied 50 q bale and wheat
has been steadier. There are smaller
variations from week to week in the
commodity price index and freedom Of
action In markets that heretofore have
been influenced by unsettled condi-
lions IN securities.
RAN Stock Situation.
The decline this week in q group of
railroad holding company securities is
a sequel to phase Of speculation in
the past two years expressed in an itch
for consultations. The industrial mer-
gers 80 years ago were mainly of COM
panies In the same line of business.
The reaction from them was due chiefly
to stock watering and to attempt to
Stife competition.
The more recent merger of railroad
lines, or their control effected through
subsidiary corporations. as well as those
OF bonds, finance companies and few
industrial concerns, have seemed to
be more the purpose Of affording profit
to their promoters ut the expense of
their stockholders.
A large part of the so-called weak
situations that have developed In Wall
street represent commitments in enter
prises unrelated to the main functions
OF the corporation or firm under suspi-
cion. Linked with this is the fact that
under the infection of q speculative era.
prices had been paid for majority In
terests that today look ridiculous and
can never be justified by future earn
lngs or business advantage.
Copyright, 1907