Tabell’s Market Letter – November 20, 1970

TABELL-S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE MEMBER AMERICAN STOCK EXCHANGE November 20,1970 In a generally sloppy performance, the stock market moved sideways to lower last week with the major averages remaining in the oft-cited trading range that has contained them since August. The commonly noted reason for the weakness 'wa-s-a sharp drop irFth-.l'FRB industrtaJ–production index, — – – – — causing a number of commentators to express doubts as to whether the powers that be are sufficiently sensitive to rising unemployment and other deteriorating e con 0 m i c indicators. Sue h com men t s, in our view, reflect an improper understanding of the effects of monetary and fiscal policy on the economy. The tools work — but not instantaneously. The results of applied policy do not manifest themselves until sometime after the application, and the time lag with which various economic indicators respond varies. It is, for example, a matter of history that stringent monetary restraint was applied throughout most of 1969. It is equally a matter of record that money has been easier since the beginning of 1970. The sensitivity of various economic sectors to alternate restraint and stimulus has been diverse. The most sensitive sector was the stock market which responded to monetary restraint by declining sharp- ly last May and which, under monetary stimulus, has since recovered. The rate of inflation, just now beginning to decline, was the next major sector to respond to monetary stringency. The last, unfor- tunately, will be unemployment, which has continued to rise to new highs and will probably continue to do so for most of 1971. Finally, however, the results of continued monetary expansion will be felt here also. It is at least an arguable premise that the administration has some understanding of this sort of timing, coupled with a rather strong vested interest in seeing an improving economy in 1972, when it will again present itself to the voters. If one theorizes that, at some point in 1971, when the outlook for the following year becomes clearer, the stock market will begin to look ahead, then 1971 could amarJet-y'earThls-ha'beenth1cas-e-fnprevious regimes as stuay of — – –'– the stock market in the four years of each presidential administration since World War I shows. The percentage change in the Dow-Jones Industrial Average for each year since 1917 is set forth in the following table, with the column headings referring to the first, second, third, and fourth years of each presidential administration. FIRST YEAR SECOND YEAR THIRD YEAR FOURTH YEAR 1917 -28.73 1918 17.45 1919 28.32 1920 -31.76 1921 10.53 1922 21.68 1923 – 3.09 1924 22.69 1925 33.87 1926 1.71 1927 28.75 1928 48.22 1929 -17.17 1930 -33.77 1931 -52.67 1932 -23.07 1933 66.69 1934 4.14 1935 38.53 1936 24.82 1937 -32.82 1938 28.06 1939 – 2.92 1940 -12.72 1941 -15.38 1942 7.61 1943 13.81 1944 12.09 1945 26.65 1946 – 8.14 1947 2.23 1948 – 2.13 1949 12.88 1950 17.63 1951 14.37 1952 8.42 1953 – 3.77 1954 43.96 1955 20.77 1956 2.27 1957 -12.77 1958 33.54 1959 16.76 1960 – 9.34 1961 18.71 1962 -10.81 1963 17.00 1964 14.57 .8189 1966 -18.94 1967 15.20 1968 4.27 Average 3.88 Average B.Ol Aerage 4.49 – – –0 The average stock market-year-to-year performance-in-the 55 years since 1917 has been a 6.4 advance, and the median performance an 8.4 rally. As the table shows, however, the average advance for the third year of each presidential administration has been considerably above this I average and, indeed, nine of the 13 years since World War I have produced advances above the median. The recent record is even more interesting. The market has advanced, with one exception, in the third year of every administration smce the first Roosevelt term and in every year since 1951, the advance has been a healthy one. It is, by contrast, in the first and second years of most administrations that stock market damage has tended to be done. Since 1929, every major bear market, i.e., 1929, 1937,1946,1953, 1957, 1962, 1966 and 1969, has begun in the initial years of an admmistration. Since present economic policy suggests an upturn beginning somewhere late in the second half of 1971, it will be interesting to see whether the pattern of the bullish third year again holds good. Dow-Jones Ind. 0100 a.m.) 756.16 ANTHONY W. 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