Tabell’s Market Letter – July 12, 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 \ July 12, 1985 Bond prices are up Bnd mterest rates have come down. Inflation hedge stocks are under pressure while finanCIal assets — bonds and the dlsmflation beneficiary stock sector — seem to be the only -;;g;;a;;;m;i;e''1n1owrr–wlienaIlOdia'hese cRan geslil1'lle 'CnaractensticSor-tbe markerow apparent-to – -'I – all of us. become identIfiable Last week, thls letter examined the recent relative performance or lack of performance of the mutual fund mdustry wIthin the past two years. Part of the reason for thIS below average performance was the inability of the money manager to IdentIfy changes withm the market. We concluded by suggestmg that markets do possess identIfIable characteristics and that a study of these characteristics IS. indeed ,Important. Techmcal analYSIS can identify the sort of broad shifts in market sentIment and can, therefore. constitute an indispensible tool in the overall portfoho-management procss. In order to answer the above question. the logical place to start to examine this change or shift In the nature of the stock market should be August. 1982. the start of the current bull market which IS now almost 750 days old. Instead of lookIng at some of the broad-based indices such as the Standard & Poors 500. we have Intead taken a monthly average of S & P groups that either constitute an Inflation hedge or would be a hsinflation beneficiary and have created two separate indexes. Inflation hedge groups would include. among others. metals. gold. copper and the entIre energy sector. DISInflatIon benefIciary groups would Include groups such as aIrlines, utilities, foods, drugs. banks. and insurance. STANDAD &POORS 500 INPlRTION HEDGE VS DISINFLRTON BENEFICIRR( RRTIO The chart above shows the monthly close of the S & P 500 and the ratio of the inflation group to the dlsinUMion group from January. 1972 through June. 1985. In other words. as the inflation hedge mdex IS advancmg more than the disinflatIon benefiClary Index. the ratio hne IS going up (1972-1980). Clearly. It can be shown from the chart that the inflatIon hedge sector has underperformed those groups which are disinflatIon benefICIaries since the August. 1982 low. It IS possible to go back even further than this date to Identify the beginning of this sigruficant change in the market environment, a change that has sustained Itself to the present. The ratio reached its hIgh at the end of 1980 comcident wIth the high 10 the S & P 500. ThIS date, by hIndsight, SIgnaled the peak of the ratIo of inflationary hedge stocks relative to those stocks that are beneficiaries of dlsmflatlon. It was during the subsequent correctlon in the market to the August. 1982 low that the mflationary-hedge mdex turned down. This occurred while the dlsinflation beneficiary index contmuea to move ahead in the face of a 15 decline in the S &; P 500. The final confIrmation of this SIgnificant mternal change came when the market rallied dramatically In August. 1982. but failed to Include the mflation-hedge sector As can be seen from the table on the OppOSIte page, from the ratio peek of December 1980, the mflation-hedge sector has declined WIth mmor interruptIons approximately 33 to June. 1985. The dlsmflatIon beneficiary mdex. on the other hand. has increased 125 to date. This IS not to suggest an immedIate switch mto the dIsinflatIon benefICIary sector was warranted shortly after the peak In the ratio ill December, 1980. However. we would suggest an examination of the data over time would reflect this gradual internal change within the market. By the August. 1982 low this change should have been clearly identifIed with approprtate shifts m weIghting made to participate In the advance which was to come. Where are we now in terms of thIS ratio The raho. based on data available from 1960 to date currently IS at the lowest level smce 1972, the historical low for the serIes. We know the stock market to be a leadmg inmcator histOrIcally reaching peaks and troughs earher than the correspondmg busmess cycle turns. Although it seems lIkely to expect further strength m the disinflatlOn benefIciary sector in the lmmediate future. It would seem Wlse to continue to momtor serIes of thIS type that attempt to measure shlfts m market sentIment so we do not find ourselves askmg in the future the reasons why bond prices have gone down and why are mterest rates up. Dow-Jones IndustrIals (1200 p.m.) 1336.58 S &; P Composite (12.00 p.m.) 192.80 CumulatlVe Index (7111/85) 259883 ROBERT J. SIMPKINS, JR. DELAFIELD. HARVEY. TABELL INC. NO slalQment or e)'preSStOfl of opinion or any Olher matter herein contained IS or 1510 be deemed to be dlreclly or Indlreclly, an Offer or the soUcl1allon of an offer to buy or sel1 any secl.mty referred to or mQnlloned The matter IS presented merely forthe convenience 01 the subscnber While we betl!;!ve the sources of our information to be reliable we In no wav represent or guarantee the dccllraCy thereof nor of tho statements mad herem Any action to be taken by the SUbSCflher should be based on hiS Own m..esflgaflon and mformatlon Oelafleld, Harvey Tabell Inc as a corporallo'l and liS olilcers or employees may now have, or may later take, poSitions or trades In respect to any SCCUfllles mentioned In fhls or any future Issue, and such pOslhon may be dllferem from any VICWS flOW 01 hereafter ( pressed In thiS or any olher Issue Delafield, Harvey Tatel1 Inc which IS registered With the SEC as an Invcstment adVisor, may give adVice 10 Its Investmenl adVISOry and Olher customers Independently 01 any statements made In thiS or In any other Issue Further Information on any security mel1\loned herein Is available on requesl ,—————————————— – PREPARED BY DELAFIELD, HARVEY, TABELL INFLATION DISINFLATION DATE HEDGE BENEFICIARY DEC 1980 114.58 79.85 JAN 1981 FEB 1981 HAR 19B1 107.47 100.83 104.55 84.47 84.60 91.1B APR 19B1 103.41 95.27 tlAY 19B1 100.95 95.50 JUN 19B1 96.05 100.94 JUL 19B1 100.54 94.49 AUG 1981 105.54 92.27 — -. — SEP 1981 OCT 1991 91. Bl 87.29 91.0B 9i44- ,1' – NOV 1981 91.54 92.71 DEC 1981 92.71 91.96 JAN 1982 82.52 B9.14 FEB 1982 HAR 1982 77 .05 70.42 93.65 97.05 APR 1982 72.3B 101.24 tlAY 1982 72.86 99.94 JUN 1982 66.08 96.97 JUL 1982 63.00 96.95 AUG 1992 62.37 94.95 SEP 1982 70.73 105.BO OCT 1982 79.10 119.47 NOV 1982 7B.57 127.54 DEC 1982 78.39 131.50 JAN 1983 B6.12 127.68 FEB 19B3 84.94 130.37 tlAR 1983 85.91 142.32 APR 19B3 90.77 148.94 IIAY 1983 97.29 148.90 JUN 1983 96.95 150.81 ,——- JUL-'1983' –fOO44 – ,c-150;45'- AUG 1983 SEP 19B3 101.76 102.86 140.75 IH.1B OCT 1983 97.29 147.B9 NOV 19B3 7B.92 149.88 DEC 19B3 79.99 147.5B JAN 1984 79.56 142.57 FEB 19B4 7B.12 134.11 liAR 1984 81.41 133.79 APR 1984 82.29 132.54 IIAY 1984 78.33 131.52 JUN 1984 72.72 131.85 JUL 1984 67.97 130.18 AUG 1984 71.87 138.30 SEP 1984 73.94 141.65 OCT 1984 71.45 141.97 NOV 1984 71.25 145.BO DEC 19B4 68.B2 147.61 JAN 1985 71.99 152.36 FEB 1985 , , liAR 19B5 – – –APRI985' 77 .14 75.67 77.01 160.B6 , -160.77. 162-;19 n', – IIAY 1985 77.06 169.77 JUN 19B5 76.13 180.17 RATIO 1.435 1.272 1.192 1.147 1.0B5 1.057 0.952 1.064 1.144 -1.052 -0;996- 0.9B7 1.00B 0.926 0.B23 0.726 0.715 0.729 0.6B1 0.650 0.657 0.669 0.654 0.616 0.596 0.674 0.652 0.604 0.609 0.653 0.643 -'0.668— 0.723 0.713 0.65B 0.527 0.542 0.558 0.5B3 0.609 0.621 0.596 0.552 0.522 0.520 0.522 0.503 0.4B9 0.466 0.473 0.480 0.471 – O475 0.454 0.423 .- — — – — -. – — – -co- — –7 , — —