Tabell’s Market Letter – December 13, 1974

Tabell’s Market Letter – December 13, 1974

Tabell's Market Letter - December 13, 1974
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– TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIYISION OF MEMIlEA NEW VORK STOCK EXCHANGE, INC MEMIlER AMERICAN STOCK eXCHANGE ' – . – – – – – – – – – – – – – – '–.–….,, ….. – —- – ….-.,…- -.,… —.,.- – . December 13, 1974 – …. …….,.. -'—- – . –.- Since inflation has been much in the news of late and there was, at one time, at least, a con- ventional wisdom that common stocks provided a means of protecting capital against inflation, we completed this week a study which traces the history of the Dow-Jones Industrial Average plus its earnings and dividends from 1929 through the third quarter of 1974, expressed in constant-iollar terms, the adjustment factor being the Gross National Product deflator with a base period of 1958. The results of the study are interesting. As of September of this year, the actual Dow figure of 607.87 was only 353.62 when expressed in constant 1958 dollars. This compared, interestingly enough, with a constant-dollar high in the third quarter of 1929 of 678.74 and a more recent con- stant-dollar peak of 869.29, achieved in the final quarter of 1965. Expressed in constant-dollar terms, in other words, the Dow has been gradually trailing off to its current low level for the past nine years. An explanation for the decline, however, does not lie in Dow earnings,even when those earnings are adjusted for inflation. Constant-dollar earnings for the Dow in 1929 were 39.35. The 99.60 earned by the Dow for the twelve months ended September, 1974, adjusts to 60.16, an all-time peak. Indeed, real-dollar corporate profits have given a good account of themselves over the past 25 years. Throughout the 1950's and early 1960's, they remained reasonably constant around the 35 level except for the occasional recession trough. In the relatively inflation-free period of the mid-1960's, they rose to a peak of 50.76 in the third quarter of 1966 and then declined to a low of 37. 71 in the fourth quarter of 1970. The recent recovery, however, ha s rega ined a II of the groundtost;and;asnoted above the-60 16 figure 6f'1974'-stlilrd quafterrepresentsanantime- -,,- record. Since payout ratios have declined, dividends have not kept pace with inflation as well, thus, perhaps, providing some explanation of the current low level of prices. For example, in 1964 the Dow paid 28.66 in 1958 dollars as dividends. For the twelve months ended September, 1970, it paid only 22.81 in 1958 dollars. Yet, despite the recent dismal record, the study suggests that stocks have managed to show a positive constant-dollar return over the years. If return is defined to include dividends plus capital appreciation, an investment in the DJIA at the 1928 close would have appeciated, with divi- dends reinvested, some 388.6 percent as of the third quarter of 1974. This works out to an annual real-dollar interest rate of around 3.5 percent. However, this figure, it must be recalled, meas- ures from a peak to a trough. If we measure from 1929 to the high of 1972, for example, the 1928 Dow investment, dividends reinvested,would have appreciated 783 percent for an annual return of around 5 percent in real dollars. And measured from 1949 to date, the annual real-dollar return on the same basis works out to better than 6 percent. On an annual basis the total return on the DJIA, including dividends and capital appreciation, has been positive in eighteen of the past twenty-five years. The table below lists this percent- age return since 1950, the 1974 figure being for the twelve months ended September. 1950 21.17 1955 24.09 1960 – 7.86 1965 12.43 1970 3.67 1951 15.59 1952 3.32 1956 2.83 -1957 -11.51 1961 21.32 1962 – 8.47 1966 -18.63 -1967 15.17- 1971 6.13 197-2.-14 15- 1953 1.52 1958 35.98 1963 19.14 1968 3.67 1973 -19.23 1954 48.90 1959 18.81 1964 16.89 1969 -16.23 1974 -38.95 Over the short term, obviously enough, the market may continue to fluctuate but the study shows that in the long run common stocks have been able to protect and enhance capital even in inflationary periods. Dow-Jones Industrials (1200 p.m.) 597.78 S & P Compo (1200 p.m.) 67.63 Cumulative Index (12/12/74) 360.53 AWT/jb ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL No stalement or expresSion of opinion or any other matter herein conlClined 15, or Is to be deemed to be, directly or IndHectly, on offer or the solicitatIOn of on offer to buy or sell any security referred to or mentioned The molter IS presented merely for the convellenctl of the subscriber While we believe the sources of our mforma- han to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any actIOn to be token by the subKrlber should be based on hiS own investigation ond information Janney Montgomery Scott, Inc, os a corporation, and Its officers or employees, may now have, or may later toke, positions or trades 1M respect to any seCUrities mentioned m thiS or any future luue, and such position rT\(y be ddferent from ony views now or hereafter eypressed In Ihls or any olher Issue Janney Montgomery Scott, Inc, which IS registered With the SEC 05 on Investment adVisor, may give adVice to Its mvestment adVisory and other ctJstomers Independent!y of any statements mode In thiS or In any other Issue Further mformotlon on ony secunty mentioned herern IS available on request

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