Tabell’s Market Letter – February 18, 1966

Tabell’s Market Letter – February 18, 1966

Tabell's Market Letter - February 18, 1966
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–.————————————————————————————– Walston &- Co. —–Inc —-INVESTMENT BANKERS MUTUAL FUNDS MUNICIPAL BONOS Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER February 18, 1966 The Dow-Jories-imlliStria'l-Avera'gelast week broke out on the downside of the long trading range in which it had held since early January. As noted in last week's letter, the dO'Nnside indication at the moment appears to be 962-960. Action at that point will afford an important clue as to the intermediate term direction of the market. Many analysts have drawn attention of late to the depressed state of the bond market and to the high yields available therein, and have drawn rather negative conclusions concern- ing the future of stock prices. It is, of course, silly to assume that the extremely high yield available in senior securities are not drawing SOme funds away from the equity market, es- pecially attempt, however, to find a long term relationship between stock and bond which has some predictive value, we find ourselves on far more difficult ground. To anyone who takes the time to study the long term history of bond prices, the most significant fact is tha t apparently these prices move in long cycles – cycles generally much longer than stock cycles. For example, the entire period from 1905 to 1920 represented a long and almost continuous decline in bond prices. From 1920, the bond market embarked 0 an upswing only briefly interrupted by the depression which brought yields to a low of 2.44 in March of 1946. Since that time, for twenty years, bond prices have been falling and bond yields rising, although there have been a few fairly substantial rallies. The following table shows the prices and yields of the Standard & Poor's High Grade Corporate Bond Index at selected points since 1946,and the series of lower prices and higher yields at each' succeed- ing intermediate high and intermediate low becomes appare Hi gh Date Price Yield D Yield March,1946 124.6 2.44 Nov r,1 4 2.84 January, 1949 122.7 2. 71 53 108.8 3.39 April, 1954 118.1 2.81/0 January, 1958—-105'9- . February, 1963 97. 80 Thus, the relationship Wi d t e , 1957 98.04 4.15 a – y;-1960- -91;'1)7– — iftanuary, 1966- '90 50—… A.-7'4o/o(todate prices since 1946, a period in which bonds have been . e . erent from that which prevailed for the pre.ious . 25 years – a perio c s e generally rising. Furthermore, an inspection of the past 25 years histor s is difficult to establish any important relat,ionship betwee moves in bonds and mo es' tocks. Actually, bond prices have tended to reach their peaks (see above) just about ime when the stock market was major upward move. A study of the dates on which bond price lows were recorded shows' eVen less relationship to the fluctuations of the stock market. There is, as a matter of fact,. only one relationsh.ip that can be drawn between bond and stock prices which seems to have some predictive value. Generally, a move of bond prices to a new low, after a rally, has foreshadowed stock. markel., peaks of some importance. Thus, the bond market rallied from November 1948 to January 1949 at which point it turned down. A new low was finally reached in May of 1951, and this took place four mnths before the September 1951 stock peak. The subsequent instances in which this has occurred are shown in the table below. The most recent instance, of course, is the new low m3.de in December of 1965, after the 1960-1963 bond price swing. To date, it has only been three months ,since.this occurrec!,.whereas in previous instan;es the between the bond price low and stock market peaks has been somewhat longer. Thus, bond prices, despite their current depressed levels, must be regarded as one of the stock market indicators that are at present somewhat inconclusive. Previous Bond Low November, 1948 June, 1953 September, 1957 January, 1960 New Bond Low May, 1951 August, 1956 February, 1959 December, 1965 Dow-Jones Peak September, 1951 July, 1957 August, 1959 Feb. 1966 (to ro.te) Lead 4 months 11 months 6 months 3 mos. to date Dow-Jones Ind. – 975.22 Dow-Jones Rails – 267.73 ANTHONY W. TABELL WALSTON & CO. INC. AWTamb Thlll market letter IS published Cor convcntenl't! nd mformntlOn and . not .\n offer to sell or a soheitfttlon to buy Any securIties dIscussed Tht' In formatIon was obtained from we hd,t'vl' to , rehnble. but we tin not lnIarRntec ,ts lIceUfJle\. ,'alston . Co. Inc Anil It… orne… , … fj,u'(tors 01 emJ'loyet's may have an mterest In or and set the M',-Urltll' t('ft'I(('1 to hert'ln. WN301

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