A Private Depression

As the economy zips into the second quarter with production, profits and employment all rising, Wall Street continues to sink deeper into its private depression. Stock prices continue to drift downward; last week the Dow Jones industrial average closed at 931, off 121 points from its high of 1052 less than three months ago. Far more frightening to brokers, there are growing indications that a sizable slice of the public has been turned off stock investments. The latest New York Stock Exchange survey shows that in 1972--the very year in which the Dow Jones average finally cracked the magic 1000 barrier the number of individuals who own stock dropped by 800,000, to 31.7 million. The decline was the first since the Big Board began its surveys in 1952.

The exodus of the individual investor has caused trading volume to shrivel to levels at which few brokers can make any money. Turnover on the New York Stock Exchange must run between 12 million and 17 million shares daily for most brokerages to break even; on two of the five trading days last week it slipped below the bottom end of that range. In the first two months of the year, the brokerage business as a whole suffered a loss of $51 million, v. a $250 million profit in the same period of 1972. Such big houses as Loeb, Rhoades and Shearson, Hammill are cutting their staffs; others like Drexel Firestone, Laird, Bissell and Estabrook are being forced into mergers with stronger firms. The crowning blow: last week two seats on the New York Stock Exchange sold for $92,000 each--down $3,000 from the last previous sale in March and off an embarrassing 82% from the record price of $515,000 only four years ago.

Fear. One reason for public disenchantment with stocks is the lingering memory of the 1970 market plunge, which badly burned small traders. Some potential investors also fear that they will need all their money to meet the rising cost of living and are putting spare cash into banks rather than into stocks that might go down in value. There is also a widespread feeling among individuals that brokers have neglected them in order to court the big-block business of mutual funds, pension funds and other institutional investors. One tangible sign of that attitude: brokers have raised commissions on small trades by almost 50% in the past two years, at least partly to make up for the lower fees that they are getting from institutions, which can now bargain on commissions for trades worth more than $300,000. As a result, an individual typically pays 600 in commissions to buy a share of A T & T; an institution may pay only 60.

The situation has alarmed not only brokers but the heads of many companies whose shares are traded on stock exchanges. They fear that if trading is totally dominated by institutions the market will become erratic; for example, if several institutions decide to dump a stock at the same time, its price will plummet even though the company may be doing well. Heads of 250 corporations that are listed on the American Stock Exchange have now formed a Committee of Publicly Owned Companies that, among other things, will lobby against any further increase in commissions for individual investors or any further cuts for institutions.

The securities industry itself is stepping up efforts to woo the small investor back. The Amex, for example, is completing plans for its first nationwide ad campaign to sell individuals on the merits of buying stock. A turnaround in prices--which is not an unreasonable expectation if the economy continues to boom--would surely help such efforts. But because brokers have done such a thorough job of convincing the small investor that he is not wanted, they face a long campaign before they change his mind.

This file is automatically generated by a robot program, so reader's discretion is required.