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But while industry groups have risen, by no means all the stocks in the groups have done so. The big push has been made by the blue chips, so hotly sought after by pension funds and other institutional investors. Lower-priced stocks, which soared 537% from 1942 to 1946 (almost five times more than high-grades), have enjoyed no such rise this time. They have advanced only half as much as the quality issues. Of the 1,536 stocks on the New York Stock Exchange, some 60% are at or below their 1946 highs. A prime example is the auto group, up only 2% since September. But the rise is due entirely to General Motors (up 32% to $71).
Too High? Has the market gone too high? One of Wall Street's favorite measurements is the ratio between stock prices earnings and dividends. On this basis' some of the booming blue chips have become expensive. At $125, for example, Du Pont is paying only 3%, as is Union Carbide ($83). But others are still reasonably priced, on the basis of both dividends and book value. At $47, U.S. Steel is not only paying 6.3% but is selling far below its asset value of $76.39 a share.
Wall Street's bulls point out that the market's rise has not been heavily speculative. Brokers' loans stand at only $1 billion, v. $8.5 billion in 1929. And while the short interest of 2,849,000 shares is the highest since 1932, this bearishness helps keep the market up. For in any price drop, many bears will buy stock to cover the shares they have sold short, thus help limit the decline.
Compared with the price-earnings-dividend ratios of other years, the market does not seem too high. In 1929 stocks yielded an average 3.24% dividend, and 3.55% in 1946; now they yield 4.91%. At the peak of the boom 25 years ago, the stocks in the Dow-Jones industrial average were priced at 19.45 times earnings, and in 1946 at 17.46 times earnings. Now they are priced at only 11 times earnings. Wall Street's bulls translate the figures this way: if stock prices stood in the same ratio to earnings as they did eight years ago, the Dow-Jones industrial average today would not be 328 but 520.