Tabell’s Market Letter – August 23, 1957

rr. Walston &- Co. – – – – – I n c . ..; r\ Members New York Stock Exchange NEW YORK PHILADELPHIA LOS ANGELES SAN FRANCISCO BASLE (Swa,ldl OFFICES COAST TO COAST CONNECTED BY DIRECT PRIVATE WIRE SYSTEM TABELL'S MARKET LETTER August 23, i957 1 fter reachmg mtra -day lows on Tuesday of 44.74 on the Standard & Poor 500- Stock Index and 474.52 on the Dow-Jones Industrials, the averages rallied back to 45.83 and 488.23. However, all of this advance was lost by Fnday with intra-day lows of 44.43 and 474.81. About the only encouraging feature was the fact that volume on nse of 2,700,000 shares on Tuesday exceeded the down day's volume of 1,500,000 shares and 1,960,000 shares on Thursday and Friday. This decline so far, and almost every de- cllning phase for the past two years, has been brought about by an absence of buying powe rather than an increase in selllng pressure. The market has been in oversold territory f( mne trading days, on a short term basls, but has not yet aro,!sed any gEeat buymg mtereEl It may be necessary to agam test the 43-42 an-d 465-455 level wherestrongbuying intere-s– has appeared on four dlfferent occasions since the start of the 16 -month consolidatmg are, m April, 1956. Stock pnces are the result of four factors. Three of these factors are fundamen- tal and tangible. They are earmngs, dlvldends and money rates. These fundamental fac- tors change rather slowly. The fourth factor, investor confldence, is extremely intanglbl , dlfflcult to measure and subject to wlde swings m both dlrections. Investor confldence, or the lack of lt, lS what causes the same security to sell at posslbly 12 times earnings when mvestor confidence is hlgh and at 8 ilmes earnings when confidence in the future is at an ebb. These psychologlcal moods can temporarily have more effect on stock pnces than the more fundamental factors. Looking at the general over-all pattern rather than indivldual compames, earn- mgs have not showed much change S111ce 1955. Earnmgs on the Dow-Jones Industrials hav centered around 35. For 1957, earmngs are presently estlmated at around 37., pre- suming a plck -up m the fourth quarter. Part of thlS mcrease will be accounted for by sha earmngs jumps by two stocks m the average, Chrysler and Westinghouse Electnc. D1Vl- dends on the industrials were 21.58 in 1955 and 22.99 m 1956. They probably will be a bit hlgher in 1957. There have been no important changes m the two factors since 1955. —Therehas, of-course, -been a sharp mcrease m monerrates' drop- . in bond prices brought about by the tremendous demand for capital expansion money to fmance new plant and new eqUlpment expenditures m order to offset increasing costs and a labor shortage. The hght money pollcy of the FRB is designed to slow down these in- flationary pressures. It would appear from my work that money rates and bond prices will probably stabllize at around present levels, but tight money could have some be- lated effect on stock pnces. Speculahve confidence, as dlfferenhated from 111vestor confidence, has had wide alternatmg sWlngs of optimlsm and pesslmism for the past two years and wlll con- tmue to be subject to the same type of action for a longer penod of hme. Investor confldence has been at a hlgh level since 1955. It has been based on the underlying basls forces of (1) An mcreasing populatlOn wlth increased needs and the income to purchase these needs. (2) 1- labor shortage. (3) 1-1 high rate of capital expendlture necessltated by a need to mcrease produchvity. A 11 of these factors will result m higher earmngs and higher price levels for the common stocks of soundly managed companies. There will be temporary interruphons and restmg spells llke the present 16 -month trad111g area whlch wlll probably contmue for a year or more longer. EDMUND W. TABELL '.ALSTON & CO. INC. This market letter IS not. and under no circumstance'! IS to he construed as, an offer to sell or a soilcltnhon to buy any securitIes referred to herem The mformat!on contained herem IS not guaranteed as to accuracy or completeness and the furnishmg thereof IS not, nnd under no Circumstances IS to beconstrucd as, a repregentatlon by Walston & Co Inc All e(pressLOns of opmlOn are subject to change Without notice \Val&ton & Co, Inc, or any Officer, Director or Stockholder thereof, may hl,,'e 'In mwrest the securities mentioned herem ThiS market letter IS mtended and presented merely as a general, Informal commentary on day to day lIe\H, and nut us a complete analysls AddItIOnal mformatlOn .Ith respect to any secUrities referred to herem Will be furntshed upon request. \\ N 301