FINANCE
THE STOCK MARKET OUTLOOK — THE AMERICAN FACTOR
THE course of prices of public securities continues to be dominated by two main factors, the first being developments in international affairs and the other being the course of developments on the New York Stock Exchange. Time was, and quite recently, when Wall Street was by no means the factor which it is today ; present conditions are the result very largely of the extent to which some • time ago London became interested in American securities, since when the catastrophic fall in those securities has affected the psychology not only of New York but of the London markets.
In view, therefore, of the extent to which movements in the Stock Markets here have been affected by the vagaries of Wall Street it may be useful to enquire whether there are any reliable indications of that market settling down into a more normal state. There is little doubt that the recent catastrophic and unexpected fall in American securities on the New York Stock Exchange must be attributed to an unwieldy speculation based upon expectations of a still further expansion in industrial activity and in industrial profits during the autumn of this year, and when it became evident that those expectations were likely to be disappointed the effect on prices was all the greater by reason of the rigid restrictions which had been imposed upon Wall Street trading under the Rules and Regulations of the Securities and Exchange Commission. Among these restrictions were the enormous margins " imposed upon speculative purchases of securities, the effect of which was materially to limit the market and emphasise the effect upon prices of comparatively small purchases or sales. This point was very clearly brought out by Mr. Winthrop W. Aldrich, Chairman of the Chase National Bank of New York, in a recent address to the Chamber of Commerce of Rochester, New York. In the course of his address, Mr. Aldrich declared that the break in Wall Street prices which began in the middle of last August was scarcely to be attributed to current business or foreign selling. Referring to the sales which took place, Mr. Aldrich declared that market selling of securities found a Stock Market " so restricted and so thin that it couldn't take it." He showed that whereas in a 12-day period of decline in 193o-31 thirteen thousand one hundred shares were sold for every 1 per cent. fall in the price of a given list of thirty shares, a sale of two thousand six hundred shares was sufficient last September to put prices down by I per cent.
OTHER ADVERSE INFLUENCES.
It is not merely, however, the heavy margins required under the present Regulations which made for the thinness of the New York Stock Markets, but also the heavy rates of taxation on capital gains, the higher income tax, the fears of still higher taxation to meet the United States Budget deficits and, finally, the extreme uncertainty about the future tactics of Washington, to say nothing of the fears of increasing demands on the part of Labour calculated to affect industrial profits, if not actual industrial activity. Those are the main factors which have been responsible for the recent clObilde in Wall Street, and while no doubt there might be added to them apprehensions concerning European political develop- ments, such influences were, I believe, secondary to those which I have just enumerated.
It seems too much to expect that with so many causes responsible for unsettlement in Wall Street there can be an immediate return to normal conditions, especially as there can be no question of the setback which has taken place in industrial activity, and it is almost certain that Labour problems in the States in the near future are likely to be numerous and complex. At the same time, I think there can be no question that the recent severe slump in Wall Street has proved disquieting to Washington, and therefore it seems probable that in the immediate gture the New York Stock Market may be less disturbed by legislative measures of a nature inimical to industrial and financial activity. In short, it may be hoped that the worst has been seen of the fall in American securities, and therefore that Wall Street influences may be a less dominant factor in our markets in the immediate future than they have been of late.
THE INTERNATIONAL FACTOR.
Concerning developments in international affairs, it is of course impossible to indulge in mere forecasts, but looking at the matter simply from the standpoint of the Stock Markets I think it might fairly be said that it would, require very serious developments indeed to exert any further depressing effect upon the Stock Markets as a whole, for the fall which has taken place during this year, not merely in American securities but in Home Industrials- and in some of the speculative markets, has been so extensive as to make many of the shares distinctly attractive to the investor. The continuance of cheap money and the embargo on foreign loans is once again forcing bankers and insurance companies into the investment markets, and to a certain extent, the private investor is similarly affected. In .many respects, therefore, the outlook for good-class securities seems to be more favourable than a few months ago, and it would not be at all surprising if the course of prices between now and January should be more favourable to holders.
On the other hand, and although the event is still far off, I am inclined to think that as the end of the nations' financial year approaches Budget prospects may not be a very helpful influence. The recent setback in prices of commodities must be of considerable assistance to the Government in the matter of its rearmament expenditure, but, even so, that expenditure will be increasingly heavy during the next two or three years, and unless the current financial year should yield a good surplus there may be some apprehensions of increased taxation, 'while the prospect of further instalments of National Defence Loans has also-to be borne in mind. Assuming, then, for the moment that there is to be no striking improvement in the international political outlook, I am inclined to look for quiet and somewhat subdued markets for some little time to come, though there can be no question that the effect of most of the adverse factors I have enumerated would be completely overwhelmed by any real improvement in international affairs.
ARTHUR W. KIDDY.
(Financial Notes on page 827.)
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