Tabell’s Market Letter – June 11, 1971

TABELL'S MARKET \ I LETTER L! . eo. STATE ROAD, IDRINCETON, NEW JERaEY 08540 DIVISION 0 .. MEMS' NEW YO ..K STOCK EXCHANGE. INC MEMSEft AME ..ICAN IITOCK EXCHANQE — '-111 a-move whilih-attracted 'very lithe nOtice- (a exception''was hexc'clle/i!'b91- ', Alfred L. Malabre, Jr., in Monday's Wall Street Journal) the prestigous National Bureau of Economic Research has officially designated the 13-month period from November, 1969 through November, 1970 as a recession. It was the 27th recession since the N.B.E.R. began recording them back to 1854 and the fifth official recession of the post-World-War-II period. The timing is interesting. The recession was not officially recognized around the end of 1969 when it began. It was not recognized in the Fall of 1970, at which point real GNP had been flat or declining for four quarters and corporate prcfits had been sliding fer almost two years. It was not, in fact, recognized until six months after the whole dreary affair was over. Now this is no criticism of the N.B.E.R., whose function, after all, is to keep the histori- cal record straight. What it does illustrate, however, is the total folly of attempting to relate economic developments to the intermediate-term course of the stock market and of trying to forecast the course of stock prices on the basis of the business cycle or the short-term trend of corporate profits. Again, recall the timing. The recession began in November, 1969. At that pOint, the Dow-Jenes Industrial Average was 11 months past its high, having peaked out around 995 in December, 1968 and having dropped over 220 pOints to around 770 by the end of Novem- ber. Indeed, by that time some two-thirds of the total drop was over with, the last third com- ing with the final fall to 631 in May, 1970, which, it will be recalled, was six months before the recession was finally over. By the time the recession actually ended,in November.of la!;t – year, tlieD-ow was up f60 pOints trom its low, and when the end was finally recognized in May, . – it had moved up another 160 pOints. Nor was there anything unusual about this process. The 1953-1954 recession began in July, 1953 and ended in August, 1954. Stock prices peaked in January, 1953, six months before the recession began and bottomed in September, 1953, just two months after it started and 11 months before it was over. By the end of the recession, the Dow had moved from 195 to 354. In 1957-1958 prices peaked two years before the onset of thecontraction and bottomed six months before it had ended. At the recession's end, the Dow had already moved from 416 to 456 and within six months had moved 100 pOints higher still. The same sort of record was shown in 1960-1961. As measured by the S&P, stock prices peaked almost a year before the re- cession commenced and, by the time it was over in February, 1961, most indices had already moved to definitive new highs. Thus, the 1970-1971 experience is a perfectly normal one with- in the context of the post-war period. Yet, despite all this, we were being assured repeatedly, as stocks hit their Iowa year ago, that equities were poor investments because we were in a recession, and we are being assured, with equal convinction, today that stocks are a buy because the current outlook calls for continued expansion. For ourselves, we prefer to be guided by the historical record. In 1954-1956, stock prices continued to move ahead for almost two years after the end of the recession and in 1958-1959 they continued expanding for about a year and a half. In 1960-1961, the expansion continued .,. 'f021O -months a-fter'thecemlOf the economic'down-swing'– –.- —.,….- .o- – —– – Now one obvious conclusion from the figures above is that the periods of expansion following the reversal of economic downturns seem to be getting shorter. This is, in our view, an acceleration of the anticipation process suggested above, Le., prices are discounting re- coveries a great deal faster than they have in the past. Even so, the record does suggest that the discounting process is not yet fully completed. It is only, after all, six months since the now-recognized centraction came to an end thus suggesting, at a minimum, a continued good market on into the Fall. By that time, no doubt, the economy will have improved even more markedly and the outlook for 1972 earnings will be excellent. We will prefer, however, to allow the market itself, through its own technical condition, to tell us what the prospects are for continued advance. Dow-Jones Industrial (1100 a.m.) 917.28 S&P (1100 a.m.) 100.88 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL AWTmn No statement or expression of opinion or any other molter herem contolned 15, or IS to be deemed to be, dlreCliy or Indirectly, on offer or the Olleltotlon of on offer to buy or sell any security referred 10 or mentioned The motler IS presented merely for the convellenc of the subSCriber While oNe believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor of the Iotement mude herein Any ocllon to be token by the subSCriber should be based an hIS own investigation and information Janney Montgomery 5011, inc, 05 a corporation, and lIs officers or employees, may now have, or may later take, POSitiOns or trades In respect to any SKurttles mentioned In thiS or any future Issue, and such pOSition may be different from any views now or hereafter eprcued In thiS or any other Inue Janney Montgomery 5ott, Inc, which IS registered With the SEC 05 on Investment adVisor, may give adVice 10 ItS .nvestment adVISOry and other customen Independently of any statements mode In thiS or .n any other Issue Furlher IfIformotlon on any seamty mentioned heretn IS avolloble on request