Tabell’s Market Letter – March 06, 1981

. TABELL'S MARKET LETTER – l————– 909 STATE ROAD, PRINCETON, NEW JERSEY 08!540 DIVISION OF MEM8ER NEW YORK STOCK eXCHANGe, INC MEMBER AMERICAN STOCK EXCHANGE March 6, 1981 New Ladership is a.p,h;ase which.hascI'9PRed up regularly in.these.writingsalong with. thoseof most other financial commentators. In many ways'the phrase is yet-another Wall Street euphemism meaning — in simple terms — that a lot of stocks, which were not going up before,are going up now, and a lot of other stocks, which were going up, have stopped doing so. Regardless of the politeness of the phraseology, the phenomenon has been a fact of stock market life over the past three months, and it has decided implications for successful portfolio management. Through the early part of 1980, at least until the popular averages began moving sideways early last fall, the distinctive feature of the stock market was strong upside action on the part of energy-related, high-technology, and defense groups. This sort of leadership was broad enough to have a pronounced upward effect on the major market averages. (Broadly defined, energy constitutes almost a third of the weight in the S & P 500). It is not surprising that the onset of correctionary phases in these groups coincided with the recent halt in upside progress for the major averages. For example, for the past three months, group indices for International and Domestic Oils are down 11 and 12 percent respectively, and these two groups rank 97th and 99th out of 102 industry groups in terms of price performance over that period. This downside drag has proved too great a force for the major market indicators to overcome. The last quarter is an interesting time-frame over which to measure individual group performance. Such a measurement takes US back to the second week of December last year, and it was in that week that the Dow-Jones Industrial Average touched its December low of 908.45 from which point the yearend rally began. That rally, fairly dynamic- in extent, carried over 10 percent to 1004.69 in early January. The entire period since has been spent in a retracement phase during which the Dow lost threefourths of the ground gained, and other averages retraced their entire upside moves and, in some cases, a bit more. The S & P 400 as of this Wednesday was 1. 5 percent above its level on December 10. It might well be cQncludedthat, in such a priod,ppljunitie!lJ0Lm!ljngful gains in the stoC.k.. …,.t market would be limited. Such has hardly been the case. If one isolales lhe 10 b-est-acting groups pver' the three months, one finds that they have moved ahead by amounts ranging from 20 to 38 percent. 73 of 102 groups have turned in performances on the plus side and 70 have outperformed the S & P 400. Again it is the dominance of energy and energy-related stocks in capital-weighted averages which accounts for this discrepancy. The heavy weight of these industries in broad-based market indicators has caused those indicators to perform in, at best, an unexciting fashion. Nonetheless, attractive investment opportunities have existed and continue to exist in industry groups possessing a smaller relative importance. Eliminating a couple of groups dominated by takeover candidates, the 10 best performing group indices over the past three momths have been as follows 1. Air Transport 2. Mobile Homes 3. Air Conditioning 4. Chemicals 5. Soft Drinks 6. Restaurants 7. Truckers 8. Steel 9. Tires & Rubber 10. Department Stores It is not easy to find a common denominator for this new leadership, but, on analysis, a few factors emerge. There is, first of all, a flavor of smokestack America, the basic industry stocks which turned in a strong market performance in the 1974-76 period and have been largely quiescent since. There is also, in the reemergence of such groups as Department Stores, Soft Drinks, and Restaurants, a suggestion of a revival of interest in stocks affected by increased consumer spending. This is an interesting phenomenon, since the conventional wisdom would hold that the outlook for such an increase is questionable, at best. Finally, s common thread thst seems-to-15ind -mucll'of-th'E!neW -market leadership is relative cheapness. By and large,msny of the issues now outperforming the market sem to be priced fairly low in relation to their current earning power, vis-a-vis a great many leaders which, in the process of the 1980 market rise, became fairly well exploited. Whether the present leadership continues a transitory phenomenon or something more permanent, is of course, the crucial question. Technical patterns, however, would suggest that the latter is more likely to be the csse. . Dow-Jones Industrials (12 00 PM) 959.82 S & P Composite (1200PM) 129.23 Cumulative Index (3/5/81) 1054.63 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No stalement or expreSSion of opinion or any other moiler here'n tonlOined IS, or IS to be deemed 10 be, dlrettly or ,ndirectly, on offer or the soliCitation of on offer to buy or sell any security referred 10 or mentioned The maIler IS presented merely for the convef'len of the subscriber While we believe the sources of our information to be reliable, we In no way represent or guarantee Ihc accuracy thereof nor of the statements mllde herein Any ochon to be taken by the subSCriber should be ba5ed on hiS own Investigation and information Janney Montgomery Scot!, Inc, as a corporation, and Its officers or employees, may now have, or may lator toke, positions or trades In respect to any secUrities mentioned In thiS or any future Issue, and such position may be different from any views now or hereafter expressed In thl or any other Issue Janney Mootgomery Scott, Inc, which 15 reglsfered With the SEC as an IIlvestl'lent adVISor, may gIVe adVice 10 lIs Investment adVisory and other customers ,ndependently of any statements mode In Hus or In ony other Issue Further Information on any security menllooed herein IS aVailable on request