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Although businessmen still worried over the federal deficit and the threat of an increase in their already high corporate taxes, many were genuinely hopeful about the outlook for the next nine months. They thought that business would remain close to the present level—or even increase. At a meeting of 51 of the nation's top businessmen in Boston a fortnight ago, Thomas J. Watson of International Business Machines predicted: "As I look out into the future, I see better things for the individual than I've ever seen before."
New Price Tags. Along with all this boom and optimism, the U.S. was also getting a strong puff of inflation. Last week the prices of tires, aluminum, food and a long list of other items rose. While the price rises were poisonous to consumers and many a businessman, they were so much more food to the bull market; many investors firmly believe stocks a fine hedge against inflation.
Though honest-to-goodness bears were hard to find, Wall Streeters kept their fingers crossed, simply because the market had often reacted to what people thought was going to happen, rather than to what the economic signs indicated. Last week many Wall Streeters worried because the bull market had not had the reaction (i.e., a backtracking of perhaps one-third to one-half of the advance) that had interrupted long market rises in the past.
According to the folklore of Wall Street, a rising market needs a periodic shaking out to give it firmer footing for a new rise. Such a shakeout might well come, simply because enough people think it will and, by selling in preparation for the shakeout, cause it to happen. But there was no reason that it had to happen. "This market," chirpily insisted Wall Street Analyst Ben Davis, "is a one-way street, which will run without appreciable reaction up to the dead-end marker."
Most bulls were betting that the deadend marker would not be reached until the industrial average hit at least 250, a relatively conservative mark of only ten times current earnings. The Chicago Journal of Commerce's Justin Barbour, the Middle-west's expert on the Dow theory, went even further. "The current rise is still the first primary rise of this bull market," wrote he. "Barring war [it] is likely to run into 1951 and above 300 for the industrial average." And J. H. Allen of Manhattan's Cohu & Co. bravely predicted that this was only the beginning. "The market at the present time may bear a position somewhat similar to 1924 [when it began an ultimate 296-point rise]." This was not as fantastic as it sounded; if the stocks in the Dow-Jones industrial index rose until they sold at 15.7 times earnings—the 1946 ratio—the index would top1929's record high of 386. Said cautious, sober New York Curb Exchange President Francis Adams Truslow last week: "Barring short-term adjustments, I am sure that the trend is toward a higher level." Wall Street Analyst Thomas W. Phelps put it more sprightly: "The people who jump out of windows this time are going to be those who sold too soon."