Tabell’s Market Letter – October 25, 1991

Tabell’s Market Letter – October 25, 1991

Tabell's Market Letter - October 25, 1991
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TABELL'S MARKET LETTER – 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC \609) 987-2300 October 25, 1991 If one is to believe tbe recent market stories in the financial press, it could be concluded tbat Small is Beautiful bas become 'thestock milrket's new-slogan- The-renaissance of the smallostock—particularly theover-the-counter small stock–is, by now, awi!ely accepted fact. There is some justification for this. The most recent spate of stories bas noted the fact that the OTC Industnals and Composite bave, along witb tbe Dow, been posting newall-time highs, this while tbe S & P 500, presumably representative of larger companies, has continued to languish below its peak close of 396.64 on August 28th. Ukewlse it cannot be denied tbat, since the pre-gulf-war lows of a year ago, the OTC indices have outperformed their large-cap counterparts. The NASDAQ Composite and Industrial mdicators have moved ahead 64.4 and 76.4 respectively since that bottom of just over a year ago while their S & P counterparts could do no better than similar 33 advances. We need, however, to recall a basic fact-the fact that smaller stocks inherently display more stock-market volatility than do larger ones, that tbey regularly move ahead more in a bull market and conversely decline more sbarply in bull markets. If we are to accept market action since last October as being part of a conventional bear market, then the better performance of the OTC indicators is a perfectly normal phenomenon. There will, we should remind ourselves, eventually ensue a cycle-length market decline, and, when this occurs, we should expect small stocks to decline more than their senior brethren. Only after this has occurred will we have tangible evidence of better small-stock performance. The best to gauge the relative action of small versus large stocks is to compute a ratio, in the chart below, which has appeared before in this space, the ratio of the S & P 500 to the Value Line Composite. (Using either of the NASDAQ averages would have produced essentially the same recent picture.) The action of the two averages themselves is shown by tbe thick and thin lines at the bottom of the page, while the upper line plots the ratio. RATIO (VALUE LINE I SIP SOD) S&f' 500 VAI,.UE LINE CCIfI'09ITE —–.-' The most important fact revealed by the chart is that the relative performance of small vs. large stocks is basically a long-term phenomenon. One did significantly better owning small stocks in the early 1960's and from the 1974 low through mid-1983. Since that time the sort of issues which dominate the 500 have been the place to be. Cycles do not, of course, go on forever, and it is possible that the tmy blip at the end of the chart may represent the start of the kind of reversal that took place in 1972-76. That reversal, it should be remembered, though, required almost four years to complete. Thus Ihe case for small stocks at tbe moment rests largely on their greater volatility and the assumption of an ongoing bull market. Investors willing to make that assumption and to accept the risks involved may well be justified in opting for owning smaller issues. Whether supra-cycle outperformance has begun, though, is a point which still remams moot. ANIHONYW. TABELL Dow-Jones Industrials (1200 noon) 3019.45 DELAFIELD. HARVEY, TABELL Standard & Poors 500 (12.00) noon) 385.45 Cumulallve Index (October 24) 6410.47 No ste.lement Or expression of opinion or any other matter herein contained IS, or IS to be deemed 10 be, directly or indirectly, an offer or the sollcllatlOn of an offer to buy or sell any secUrity referred to or rnen\loned The matter IS presented merely for the convenience of the subSCriber While we believe the sources 01 our InformallOn 10 be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herein Any action to be taken by the subSCriber should be based on hiS own InvestlgallOn and Informallon Delafield, Harvey, Tabellinc , as a corporation and lis oHlcers or employees, may now have, or may later take, positions or trades In respect to any secunbes menllOned In thiS or any future Issue, and such poSition may be different from any views now or hereafter expressed rn thiS or any other rssue Delafield, Harvey, Tabellinc , which IS registered With the SEC as an Investment adVisor, may give adVIce to Its rnvestment adVISOry and other customers Independently of any statements made In thiS or In any other ISsue Further Information on any security mentioned herein IS available on request

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