Tabell’s Market Letter – December 23, 1971

,- – — , TABELL'S I MARKET , , , LETTER I ——— — — —- — J eIafo/d, Y&lI' 7ak1/ 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF fiJlnc/I /lun'10mcJ(.y .'/co fm;, MEMBER NEW YORK STOCK eXCHANGE INC MEMBER AMERICAN STOCK EXCHANGE December 23, 1971 ,.- . As the time arrives to issue a forecast for 1972 it is important, in order to know where the stock market is l1kely,ta'be' going ;tbknow'wh'ere 'ithas 'been'-'or;Omoreiinjlortantly, 'whV'ifhas been- -, I,' there. We noted in last week's letter that the stock market's journey in 1971 had, indeed, carried it over old ground since present prices are fairly close to the December, 1970 close of 838.92. We suggested moreover that the same had been true for seven long years, the Dow having been at its approximate current level as long ago as September, 1964. In partial explanation of this performance we enumerated a number of supply-demand factors which, we feel, go a long way toward explaining the character of the market since the mid-60's. These factors included heavy public selling of equities throughout the entire period compounded more recently by a reduced level of mutual fund purchases, a heavy increase in net new issues of common stock and reduced foreign buying of U.S. equities. We also suggested that a major stabil- izing force during the period had been continued pension fund equity purchases. Now the market in 1971, under the influence of these factors, spent the year between 800 and 950 on the Dow just as during the prevIous six years, with the same factors operative, it had tended to center around this range. It is, therefore, central to a 1972 forecast to determine whether any of these factors are likely to change radically. Let us examine them individually. It should first be pointed out that the poor maligned John Q. Public has been, essentially, correct in his decision to sell equities over the past six years. He has realized the central fact that, in order to achieve an above-average return in the stock market, it has been absolutely necessary to beat the averages, and he has realized that he is often ill- or,equiooed to do this. He has become well satisfied with record yields available to him either direct- Iy ., .. bonds I via a siiViiigs'-ass, …. .. u.,.,,,,s. 'rf'is . J, v , difficult to visualize his selling proclivities changing very much over the near term. The same reasoning tends to apply to the public's behaVior as a buyer of mutual funds. Net new purchases of funds could well improve as 1972 goes on, but, with the funds cash pOSition at a relatively low level, there should be a tendency on the part of managers to' sterilize this cash inflow at least in the first half of the year. New pension fund purchases should continue to provide a stimulus in 1972, but it should be remembered that a great deal of the growth from this source in the 1960's came from increases in the funds proportion of equities held. There is evidence that this proces s is now diminishing. Insofar as corporate new issues are concerned, the operative factor here has been the need to build liquidity coupled with the relatively high cost of issuing debt. Again the present available evidence suggests a heavy supply of new issues at least for the foreseeable future. Foreign buying could provide one source of short-term strength as international monetary doubts are stilled, but we doubt that this source alone is sufficient to produce a sustained rise. The obvious conclusion then must be that the market is, in 1972, likely to duplicate its 1971 per- formance, 1.e., spend most of its time in the 800-950 range, and we are thus willing to offer this projection as a forecast. Two factors, however, should be noted. The first is that, with any forecast, it is necessary to examine the influences which might cause it to change at some point during the year. If our 800-950 range is to be exceeded on the upside, we think a major reason,wilJ be a drop in interest rates .Lower available.interest rates,c,ouldreduce ' the level of public seiling, stem 'the lvel of new issues as it became cheaper to issue debt, and cuase pension funds to think less about bonds than they have obviously been doing. Strength in bond markets through the end of 1972 could thus, in our opinion, produce a better equity climate than we are now able to foresee. The second factor that should be noted is that 1972 is an election year, and the normal shape for such a year is a flat-to-down market during the first h'alf, followed by higher prices during the second half. Thus, our projected 800-950 range, if it is to be violated, is most likely to be ex- ceeded on the downside in early 1972 and on the upside in the latter part of the year. Dow-Jones Ind. (llOO a.m.) 883.13 S&P (1100 a.m.) 100.89 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTmn WE WISH YOU ALL A VERY HAPPY NEW YEAR No statement or expreS1OfI of opmion or cny alher matter here, contOlned IS, or ,s to be deemed to be, directly or ,mhrectly, on offer or the 5OlIe,totlon of on offer 10 buy or seH ony security referred fo or mentioned The matter IS presented merely for the conveflen of the subscrIber. WhIle oNe belIeve the sources of our mformo tion to be reliable, we In no way represent or guorantee the accuracy thereof nor of the statements mode hereIn Any adlOfl to be toen by the subSCriber should be bosed on tllS own Investlgallon and Information Jonney Montgomery Scott, Inc, os a corporatIon, and 115 offIcers or employees, may now have, or may later toke, poSItIons or trQdes In resped to any 5e1;Ofltles mentioned In thIS or any future Issue, and such posItIon may be d,fferent from ony vIews now or hereafter exprested In thIS or ony other l5ue Janney Montgomery Scott, Inc, which 1 regIstered WIth the SEC as on investment adVIsor, moy gIve adVIce to Its Investment adVISOry and othcl custameTl rndependently of any statements mode on thIS or m any other l5ue. Further ,nformatlon on any seCurIty mentIoned herem IS ovollable on request