Tabell’s Market Letter – July 30, 1976

Tabell’s Market Letter – July 30, 1976

Tabell's Market Letter - July 30, 1976
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE -July 30, 1976 Thursday's Wall Street Journal featured, as its lead story, a piece with the headllne, – SeC6nd QuarteiGainin'COlporatE,' Eari'it'iigs iRo15usnlnd'Bfoai!-; Tl1e-artlclewenton4o-point'—, —- out that a survey of 541 major companies showed that second quarter earnings had increased 33 percent over a year earlier. Now the detailed analysis of earnings figures is something we, as readers are aware, ieave to our fundamentalist brethren. It is, however, at least partially the responsibility of the technician to put the present relation between earnings and dividends and the market's current price level into some sort of historical perspective. As far as the Dow Jones Industrial Average is concerned, it is now known to have earned 81. 87 for the twelve months ended March, 1976, up from a low of 75.47 for the twelve months ended September, 1975. A realistic estimate of earnings for the second quarter would suggest that the twelve months ended June produced earnings for the Dow in the vicinity of 88, and standard forecasts are now estimating an earnings level in excess of 100 for the year. That index, in other words, at its peak of July 12th was selling for 11. 49 current earnings and 10.11 times what it might be reasonably expected to earn in the next twelve months. The Standard and Poor's 500 probably earned close to 9.25 for the twelve months ended June 30, 1976 and may achieve 10.50 for the year. This places it at 11. 45 times trailing twelve months earnings and 10.09 times estimated 19.76 results. On a yield basis, the Dow now returns 3.76 on its last twelve '!lonth dividend payout and 3.95 based on a 1976 estimate. Comparable figures for the S & P 500 are 3.15 and3, 77. In order meaningfully to relate these numbers to the current stock market, It is necessary to define the nature of the problem. We know that a major bull market was in effect on the 12th – –,-of this month when tli;tbowUscoreda peak of r011721andthe-S'&'Pasim1aF hTghofm5'95 – – – two days later. What we are interested in is the llkelihood, on a historical basis, of these figures having been major market peaks. The following table shows the ten major bull-market peaks for both the Dow and the S & P since 1929 and the p/e and yield based on both trailing twelve months earnings and dividends and the next twelve months earnings and dividends following the quarter in which the peak occurred. The selection of the bear markets is ad- mittedly arbitrary, but would be accepted, we think, by most analysts. The most questionable period included is 1953, which is included as a major correction by most cycle theorists, despite the fact that the decline in the Dow was only 13 percent. Dow Jones Industrials Standard and Poor's 500 Trailing Leading Trailing Leading Year 1929 1937 1938 1946 1953 1957 1961 Avg. 381.17 194.40 158.41 212.50 293.79 520.77 734.91 P/E Yld. P/E Yld. 24.83 2.89 22.25 3.13 17.51 3.84 16.95 4.50 26.40 3.13 19.95 3.26 20.79 3.20 12.80 3.68 11.41 5.27 10.80 5.13 14.204.3917.724.10 23.05 3.09 20.70 3.15 Avg. 31.92 18.68 13.79 19.25 26.66 53.25 72.64 P/E 19.83 16.83 21.55 22.92 10.97 15.35 22.77 Yld. 3.04 4.01 3.70 3.53 5.29 3.31 2.78 P/E 32.91 16.53 17.02 15.16 10.62 18.17 20.58 Yld. 3.07 4.28 4.06 3.74 5.44 3.25 2.86 1966 995.15 18.08 2.95 17.26 3.20 94.06 17.61 2.96 16.95 3.05 – 1968 -'98521r–1703 3.18 f6.54 3.43– 108.371B.81–'2.83- .. 1840 — 9r'-';- 1973 1051.7014.623.0412.213.35 120.24 17.68 2.64 14.74 2.81 The figures show that the Dow has never peaked at a trailing p/e as low as the present one except in the case of 1953, the mildest bear market of them all. Neither it nor the S & P have ever peaked at a level as low as the present one in relation to forthcoming twelve-month earnings. Llkewise, only in 1937 and 1953 has a bull market peak been associated with yIeld levels significantly higher than those currently available. These numbers would suggest to us that, although the further room on the upside may well be somewhat limited, such breathing space undoubtedly exists. Dow-Jones Industrials (1200 p.m.) 980.99 S & P Composite (1200 p.m.) 103.05 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL Cumulative Index (7/29/76) 609.98 AWTjt No statement or expression cf opinion or any other moIler herein contolned IS, or IS to be deemed to be, directly or indirectly, on offer or the Ollcltotlon of on offer to buy or sell ony security referred to or mentioned The mailer IS presenled merely for Ihe converlenc of the subscriber Whde oNe believe the sources of our mforma lion to be reliable, we In no way represent or guarontee Ihe accuracy thereof nor of Ihe stotements mude herein Any odlO., to be token by Ihe subscffber should be based on hiS own Investigation and Information Janney Montgomery Scali, Inc, as a corporatIon, and ,ts officers or employees, may now have, or may later lake, POSItions or trades In respect to any seCUrilles mentioned In th,s or any future ,ssue, and such pOSition may be dIfferent from any views now or hereafter epressed In thiS or any other issue Janney Montgomery Scott, Inc, whICh IS registered With the SEC as on Investment adVisor, may give adVice to lIs Investment adVISOry and othel customers Independently of any statements mode In thiS or In any ather Issue Further ,formatIon on any security mentIoned herem IS available on request

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