Tabell’s Market Letter – March 22, 1985

TABELL'S MARKET LETTER — 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 924-9660 March 22, 1985 Recent comments in this space have referred to the maturity of the current bull market, –The date of thnt- bull-market's-birth -is-of course-firmly–fixed -in market history .It is August – 12, 1982. Its minimum lIfespan is also a matter of record. The DJIA touched a closmg high on March 1, with the corresponding high for the S & P 500 taking place a couple of weeks earlier on February 13. In terms of the Dow, then, the current upswing is 31 months old. It has not been our intentIon. in pointing out that the advance has entered mto middle age to suggest its imminent demise. Indeed, inspectIOn of indiVlduai stock patterns at the moment reveals almost nothing in the way of the sort of advanced-stage top formations which one would expect toward the tail end of a major market advance about to turn up its toes. The potential beginnlngs of such formations indeed exist in a few cases, but even these, at the moment, constitute an infinitesimal minority and could be destroyed by any display of further strength. One of the characteristics of advanced mIddle age, however, is a tendency to settle into a rather comfortable routine, and this the bull market seems to have done. This has some implications, It seems to us, as far as its continued vitality is concerned. One of the exciting things about the early stages of any given bull market is the emergence of new and dynamIc leadershIp. This IS a qualIty which seems to be conspicuously lacking at the moment, and that lack makes it difficult to formulate a precise scenario for the remainder of 1985, or, more importantly, beyond that as we look ahead toward the shape of the next major market cycle. The above statement can be clarified by looking at the dynamics of individual stock groups. Leaders in any gIVen bull market tend to demonstrate a number of characteristics. First of all, quite obviously, they tend to out-perform the averages during the advance's entire lIfespan. Secondly, they tend to be relatively invulnerable to corrections which take place within the framework of the major upswing. There was a special opportunity to demonstrate this characteristic in the current cycle, since an unusually deep intermediate-term correction interrupted-the adance–betweenFall ,J 983 and Summer,–1984. Thir.dly,–it isoftenthecase -I that leading stocks begin to outperform the market on the previous cycle, often demonstrating resistence to the bear market preceding the upswing. There exist a number of areas which have demonstrated all of these characteristics in the course of the current rise. In terms of industry groups, a by-no-means-all-inclusive list would include Aerospace, Automobiles, Soft Drinks. Containers, Foods, Life Insurance J Newspapers, Restaurants, Tobaccos J Electric Utilities, and Regional Banks. Most stocks in these groups have conformed to the above criteria in an almost textbook fashion. Their components, at least until recently, were conspicuous by their frequency on the new-high list, and, by and large, they corrected only mildly or indeed continued to make upside progress in the trying period of late 1983 and early 1984. Likewise, a characteristic of many of the stocks in this group has been that theIr advance can be dated, not from August, 1982, but from the early part of 1980. This date, interestingly enough, was midway through the previous bull-market cycle which ran from February, 1978 to April, 1981. The groups mentioned above participated fully in the latter part of that cycle, and in additIOn remaIned largely resistent to the 1981- 1982 bear market. On the plus side, as far as many of these issues are concerned, is the fact that they do not appear to be fundamentally exploited. Often one of the attributes of bull-market leadership is that a maJor portion of that leadershipfs rise can be attributed to an advance in earnings multIples and only a mmor portIOn to earnings progress itself, the classic example being the case of the nifty-fIfty growth stocks in 1970-1973. Although the groups mentioned above tend to show somewhat higher p Ie's today than they did five years ago when their leadership phase commenced, the multiples do not seem to be all that different. To this extent the rise has been soundly based. Our own attitude toward all of this, of course. has been simply to recommend the adap– lion of a portfolIo posture weighted heavily in favor of the leading groups mentioned above and to relax and enjoy it. Such continues to be our recommendation. It would however. at least. be interesting and instructive for the market student to see new faces coming to the fore. The emergence of such new leadership would suggest a rather healthy prolongation of the current bull market and would also afford the technician some clue as to future long-term supra-cycle investment opportunities. That leadership. to date, at least,lll.5 refused to emerge. Dow-Jones Industrials (1200 p.m.) 1270.54 . S & P Composite (1200 p.m.) 179.59 …. , Cumulative Index (3/21/85) 2355.50 '-. , ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. No slateffi!nl or expreSSion 01 Opinion or any other matter herein contalnOOIS or IS to be deemed to be directly Of Indirectly an ofter or the sollcltallon of an oller to buy or sell any security referred toor mentioned The mailer is presented mel'()tyfor the convenience of the subSCriber While we beheve the sources 01 our Information to be reliable wem no way represent or guarantee the accuracy thereol nor of the statements made herem Any action to be tal-en by the subsCriber should be based on hiS own investigation andlnlormatlon Detafield, Harvey, Tabe\1 tnc, as a corporation and ItS ollicers 01 employees, may now have Or may later take positIons or trades In respect to any securities mentioned In thiS or any future ISSue, and such posItion may be dlfferentlrom any views now or hereafter expressed In thiS or nny other Issue Detafleld Harvey Tabell Inc, which is registered With the SEC as an Investment adVISor, may give advice to itS Inestmenl adlsory and other customers IndrlPenderllly 01 any staemerlts made m thiS or In any other Issue Further mlormaiion on any security mentioned herein IS Mailable on reQuGsl