Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-05-04
DECLINE IN STOCKS
DURING WEEK LAID
TO SLIM EARNINGS
Easier Credit Conditions Fail
to Offset Bearish First
Quarter Reports.
UTILITIES COMPANIES
RUN COUNTER TO TREND
Action Of Rail Issues Reflects Dis
turbed Conditions in Car
rier Industry.
BY CHARLES r. SPEARE.

Special Dispatch to The Star.
NEW YORK, May 3-There has been
decided reversal this week in the Wall
Street attitude toward those influences
that go to create security values. In
stead Of buoyantly anticipating the flu
ture, as it did during March and the
first half of April, it has been mourn
been to create one Of the most distress
ing periods that the market has expert
enced since last Autumn.
We are now getting the backwaSh
from the November panic, as this Is
represented in poor earnings, reduced
dividends, increased failures. lower
commodity prices, something Of buy
ers' strike in certain raw products and
manufactured articles and a reduced
actual or ACKNOWLEDGEMENTS power
In the necessities of life.
The speculative element was unwil-
ling short time ago to admit that
these together could do more than
transient injury to securities and put
them aside in its mistaken Judgment
that there would be this Spring re-
vival Of business and, therefore, a build
ing up of corporation earnings to a
point where the existing level of "equi-
ties" would be justified. Now it sees the
pictures of national business affairs OBJ
scured by events and records that are
slowly being replaced by more pronlis-
ing ones and accepts only in part the
optimistic reviews presented this week
by nearly every branch Of industry in
the United States by the Chamber of
Commerce and in the speech Of Presi-
dent Hoover, in which he declares that
the worst of the crisis is behind us and
that with continued unity Of effort We
shall rapidly recover"
Public Avoids Losses.
Markets suffer more from technical
weaknesses than from any other one
factor. The April market was obvious
ly unsound from the premise on which
it was based.
There are benefits in almost all Sit
uations. Out of the present decline
in stocks there has already been o re-
bound in bonds and willingness on the
part of the underwriting syndicates TO
only q short time ago on the argu-
ment that q good bond market was
impossible so long as speculative stocks
were attracting by their spectacular
advances the major interest Of the in
vesting public.
It also followed that the reduction
in rediscount rates here and abroad
would not have been made with stocks
daily soaring to new records and the
speculative passions Of the people again
being aroused to a high pitch. It was
the stock market that it gave no re-
Spouse to the abrupt change IN money
conditions this week.
Adjustment to Trade Conditions.
Between the low level of last Janu-
airy and the high price Of mid-April
industrial stocks advanced an average
Of so points. This week the average
was of Is points from the top Of last
month This Is o fair adjustment to
the indications of restricted trade given
in March quarterly statements OF earn
ings and to conspicuous signs OF over
production and reduced purchasing
power. These have been revealed in
the cut in copper metal from ID to IA
cents and in steady shading of quo
tationS for iron and steel, eliminating
on Friday In q reduction Of 50 to 50 q
ton in the products Of one OF United
States Steel's important subsidiaries.
The adjustment also takes into account
dividends that have been reduced.
The average OF railroad stocks THIS
week was much lower than at any other
time during the year, or in the Deem.
Der decline From the high figure OF
the end of March, the reaction in this
group of shares amounted to an average
of. over II points, with an uninterrupted
fall from the early part OF April until
a rally put in its appearance on Frlday.
This unusual decline was recognition
of the highly disturbed state OF the
transportation industry. which has been
more seriously affected by the business
reaction than any other.
operating income Of the carriers showed
a decrease of "a per cent. compared
with the same month in 1928. An equal
loss occurred in December. In January
the decrease was % per cent, In FEB
ruary 80 per cent and IN Marcn over
81 per cent. This was not due entirely
to the smaller movement OF freight
or the steady loss in passenger trafnc.
Earnings Increase Likely.
It is not likely that the average rail
net operating income decrease OF SO
per cent in the first quarter Of 1880
will be duplicated in the second three
months of the year, though car load
ings In April were disappointingly small
and, with quotations as they are in agri-
culture, in manufacturing, in iron and
steel, in building and in mining, gross
earnings cannot recover a great deal
this Spring. Against this element OF
earnings, in calculation Of whether
stocks now are reasonable in
price or whether one must further ad-
Just quotations to income, Is the fact
that individual issues with long div1-
dend records and large surplus earn
ings are selling as low as they have
at any time in the past two years and
that when they reach an income basis
Of between 51a and 6l2 per cent In
period when money Is quoted as low
as at present, investors will buy them
along with preferred stocks and mort
gage bonds.
There is no occasion to change the
statement consistently made in this
review for the past month that, while
business Is improving steadily, It's gains
are slow and 1t will be some months yet
before the country returns to what 1t
may consider normal basis Of pro-
duction: It has overproduced raw ma
terials; 1t has overstimulated the sale
Of manufactured articles by high pres
sure methods and it has taken from
some Of its best foreign customers the
power to buy here by draining their
money markets in order to assist in the
Wall Street speculation.
It Is debatable how far minimum
rates will stimulate business.
Rates have been low enough the past
three months to make 1t profitable to
borrow and expand If there was money
to be made in expansion. That cheap
money will assist In the distribution Of
securities there is no doubt;
also i'm attracting buyers to the new
loan.
Copyright. 1907