Strange Case of the 500

Though the stock market is supposed to mirror major trends in the U.S. economy, every experienced investor knows that the reflection is often distorted, to say the least. Rarely if ever, though, have the profits of major companies and the prices of their stocks gone off in such totally opposite directions as they did during 1973.

FORTUNE'S annual directory of the nation's 500 largest industrial corporations shows that their total sales went up 19.6% and their profits 39% from 1972. Both gains were the biggest in the 20-year history of the survey. Oil companies, not surprisingly, posted the largest profit gains, a median 53.3%. Exxon, while remaining second to General Motors in sales ($25.7 billion to $35.8 bil lion) passed GM by almost every other measure: profits ($2.44 billion to $2.40 billion), assets and stockholders' equity. But many other industries did almost as well: paper and wood-products makers, mining companies and textile manufacturers all registered median profit increases of more than 45%. Only nine of the 500 lost money, v. 22 in 1972.

Big Losers. Owners of stock in most of the 500 companies, however, took a fearful beating. To gauge how they made out, FORTUNE calculates the "total return to investors," a figure that combines dividends and stock price changes. As a hypothetical example, if a stock selling for $10 per share rises $2 in price and pays $1 in dividends, the shareholder's return is $3, or 30% of the original price. For 1973, the "return" worked out to a median loss of 25.5%--meaning that the typical shareholder in a top-500 company who sold out at the end of 1973 would have lost more than one-fourth of what his investment had been worth a year earlier. (Actually, his loss on declining prices for the shares would have been even greater, but dividends received during the year would have reduced the net loss somewhat.) Only oil and mining stocks, among the industry groupings, yielded investors a positive net return in dividends and price appreciation. The dramatic rises in the profits of the 500 companies, and the equally dramatic drops in the prices of their stocks, observes FORTUNE, were both reflections of inflation--which pumped up profit figures but also lifted interest rates to "such extraordinary levels" that many investors abandoned common stocks to put their money into fixed-income securities instead.

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