Tabell’s Market Letter – August 09, 1974

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE August 9, 1974 It seems to us impOSSible, from any rational pOint of view, to view the events which culminated la st.nightand. today. with anyfeeling other tha n-sadnesS We' find-ourselves Tn addition -;- in 'agree– ment with those commentators who have expressed admiration for the viability of the Constitutional structure. Beyond that, we do not think it is the province of this letter to comment on those events except insofar as they relate to securities markets. The response to the first rumors of resignation, it will be recalled, was a shrap three-day, 45-point rally ending on Wednesday with some correc- tion on Thursday and Friday morning. Although PreSidential resignation is an experience unique in 200 years of American history, the stock market's action was, m initial appearance at least, simply another repetition of a phenome- non that has ample historical precedent. That phenomenon centers on the fact that, shortly after any sudden and unexpected change in administration (or change in direction of administration) the rrKlrket tends to respond initially with an extremely sharp, short-term rally. That short-term rally, moreover, often constitutes the takeoff point for a sustained advance later on. Let us consider the precedents. On Sunday night, March 31, 1968, President Johnson announced he would not seek reelection and would actively pursue peace in Vietnam. The Dow moved ahead 20 points on the following Monday, setting an all-time volume record in the process and continued the advance throughout the early part of the month of April ,advancing over 50 points in two weeks. On November 22, 1963, President Kennedy was assassinated in Dallas. The ini- tial response was a panic decline of 20 points, with trading halted early. However, after a three- day closing, the market opened the following week wIth a 32-point advance, closing 11 pOints higher than it had been the day prior to the assassination. The rally continued into early Decem- – -ber-for-a-tota 1-auvanCErofmore'thln''l'SOpo1nts. On Aprirr2-,-19457'Prn-siuent-Rb'oS'even-dfed at—'- Warm Springs, Georgia, wIth the presidency passing to V,ce President Harry S. Truman. On the following Monday, the market advanced sharply on expanded volume, and continued the advance without any substantial interruption for the next two weeks. Going back even farther, the after- math of the death of President Harding, on August 4. 1923, was an initial decline followed by a sharp' rally throughout the remainder of August,which produced a 7 1/2 advance. Now, the rea son for this sort of behavior IS not the fact that the market exhibits a macabre ex- citement at the unexpected removal of a President, by whatever means. There exists, rather, m our view. a strong psychological tendency to rally round a new President. We thus, at the time, called the 1963 action the Johnson Confidence Eoom. If a rally from current levels ensues, the appelation, Ford Confidence Boom will probably not be a misnomer, just as it is, likewise, arguable that, in the earlier ca ses, the market wa s expressing mitial confidence in new Presidents Coolidge and Truman. The conditions preceding the changes in administration above and their longer-term aftermaths are also interesting. At the time both of Roosevelt's death and the Johnson announcement, the market had been advancing for a number of years. Both of the ensuing rallies, the one in 1968 lasting for nine months, and the one in 1945-46 for 14 months, proved to be the final advances of their respective bull markets. In neither case, did the market correct substantially following the initIal rally. In 1923, by contrast, the market had been drifting lower for most of the year. The initial rally in August was retraced entirely m September and October, but prices went on . . – – – –… – – – – – -.– – – –;;-. — – . — – —- from the October low to advance almost uninterruptedly into 1929. The 1963 experience, in many ways, constitutes a unique case. At that point the market had been advancing for over a year but was beginning to show distinct signs of weakness, mcluding sharply deteriorating breadth conditions. The boom of confidence m President Johnson was of sufficient strength to turn that technical condition around entirely in the first few months of 1964 and to lead to an advance which went on for over two years. If any sustained rally does develop from the current levels. then, it will undoubtedly be viewed by many as being ephemeral. Historical precedent, however, hardly suggests that this is likely to be the case. Dow-Jones Industrials (1200 p.m.) 777.77 S & P Compo (1200 p.m.) 80.90 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL Cumulative Index (8/8/74) 462.05 AWT/jb No stalemenl or expression of opinion or any other moIler herem contolned IS, or IS to be deemed to be, directly or mdlrectly, on offer or Ihe sollcltotlon of on offer to buy or sell any securrty referred 10 or menlloned The molter IS presented merely for Ihe conVCl'lenCE of the subscriber While -HC believe the sources of our information to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any cc1lon to be token by the subscriber should be bosed on hiS own InvestlgohOn ond Information Janney Montgomery Scot Inc, os 0 corporation, ond Its officers or employees, may now have, or may Icter toke, positions or trades In respect 10 any seculltlcs mentioned In thiS or ony future Issue, and such position may be different from any views now or hercofter expressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS reglslc-cd With the SEC as on Investment adVisor, may give adVice to liS investment adVISOry and other customers Independently of any statements mode In thiS Of In any other Issue Further information on any secu-Ily mentIOned herein IS ovolloble on request