(5 of 7)
The 1,254 companies listed on the Big Board had also changed. U.S. corporations last year had $67 billion in working capital, more than double the total ten years ago. Though they came out of the war with huge new modern plants which were largely written off as part of the war's cost, they have put another $70 billion out of profits into postwar expansion. In many cases, a company's stock, even after a year's steady rise, came nowhere near reflecting the actual value of the company. Said E. F. Hutton & Co.'s shrewd trader Gerald M. Loeb: "The stock market, uninflated, unmanipulated, unsupported by any Government props, is perhaps the soundest part of the whole economy."
How Big? Now the big question is: How long will the bull market last and how much higher will it go? No one knows for sure, but Wall Street, as usual, is full of opinions. Those who think it will go higher have plenty of solid arguments on their side.
There is no doubt that there are plenty of supports under the market. The most notable are the fast-growing investment trusts (TIME, July 11), which are pouring some $500 million a year into the market, much of it from people who have never bought any stock before. In the offing are millions more from the huge pension funds now being set up by company after company. Just as individuals are shifting from bonds, which pay only 2%-3% interest, into higher paying stocks, so pension fund administrators are planning to put much of their money into blue chips and perhaps even some businessman's speculations (see tables). After July1, the administrators of private trusts in New York State will also be able to invest in common stocks, the first time the state regulations have permitted them such leeway. They will be allowed by law to invest "up to 35% of their funds (an estimated $1 billion) in such common stocks as a "prudent man" would buy. The effect of all this safety-deposit buying would be to cut down the available supply of stock and consequently drive up prices.
New Wonders. But overall, the biggest power under the market is still the stability and steady growth of the U.S. economy. From last summer's low point of 161, the Federal Reserve index of industrial production has moved upward to an estimated 192 for May, only a few points below the postwar peak. And business is still getting better. Last week U.S. steel mills produced at the rate of 99 million tons a year, the highest in history, and orders were piled up for months ahead. The automakers, who had been cracking records week after week, cracked another: they turned out 146,470 cars. Production workers' earnings were still on the rise. And in April, unemployment fell from 4,100,000 to 3,500,000.
Housing units were going up at the rate of 1,185,000 a year; in the building industry, 1950's first four months were 53% ahead of the same period in 1949, the previous peak year. The rush to buy building materials had created such shortages that a grey market had sprung up again.