Tabell’s Market Letter – May 22, 1992
View Text Version (OCR)
TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 May 22, 1992 We find ourselves, It would seem, in an unusual equity market, one beset by cross currents and tom by conflicting forces. In terms of the Dow. yet another new-high was achieved on Tuesday-with a close-at 3397 .99…..-The 'found-number phenomenon has once ….. again appeared, and the Average, for the past couple of weeks, has engaged in a flirtation with the 3400 level, exceedIng that number on an intra-day basis and on a few ticks but not, so far, managing to close there. The Dow's performance, as we and just about every other market commentator on the face of the earth have pointed out, blatantly overstates the bullish case. The S & P 500 did, admittedly, when it reached 418.49 on May 11th, manage to post a new three-month peak. That peak, however, was still below the broader index's 1992 hIgh, achieved back on January 15th at 420.77, at which time the Dow was 150 points under its IDld-week level. Moreover, the S & P has gone back, in the past few days, to underperforming, failing, this week, to better its mid-May high. Almost any measurement one cares to look at suggests the narrowness of present leadership. Not since February has the NYSE been able to produce over 100 daily new hIghS, despite repeated new thrusts by the DRA. Meanwhile a glance at the actual names compnsmg the new-high list suggests an even more dismal picture. Of the 72 new highs posted on Wednesday, 31, or almost half, were Preferreds. an indicatIon. perhaps, of higher bond prices rather than a strong stock market Optirrusts, of course, can point to what can now be acknowledged as an earnmgs recovery We would certainly agree than such a recovery is underway, although its vitality is suspect and probably will remain so, at least until second-quarter earnings make their appearance. Current levels of valuation, though, certainly allow for almost any recovery prospects remotely in sight. It IS arguable that, to use an old clIche, present prices are discounting not only the future but the hereafter. And yet, withal, the market continues to maintam its current levels, making new peaks on the Dow and at least remaining in Sight of those peaks in terms of the broader indicators. Meanwhile, none of the technical negatives cited above should be, by thIs time, unexpected news. The hme is long gone when there were only a few of us labonng 10 the technical vineyard. and the basic concepts of market breadth and leadership are WIdely understood throughout the investment community. Widely heralded signs of technical weakness have, thus far at least, failed to dissuade most buyers of equities. The same is true of valuation factors. It seems to us now to be common knowledge that present levels of pie ratios and yields have, Just about invariably, led in the past to stock-market difficulties—indeed for the most part to major bear markets. Yet we have seen inJust the past t-wo days new highs on- the D-ow Billions of Dollars — 'JIlDoo ….. -'–. There is an old saying that II money makes the mare go , and this IS equally true of the stock market, now perhaps Sales Net Sales Total Assets Cash RatiO as much as ever before. What has kept prices at their current levels, it seems clear to us, is a monster mflux of new nvestment funds. One source of such funds is ObVlOus—equlty AVG 1986 4.819 2.602 148.174 9.67 mutual funds. The table at left shows the average monthly level of Dew sales, sales minus redemptions. total assets and cash AVG 1987 5.974 2.660 205.883 966 ratio for such funds for each year from 1986 to 1991 along with indivldual figures for the first three months of 1992 and average AVG 1988 2.553 0.328 191.579 1031 for the year so far. Note that new sales in 1992 have so far AVG 1989 4.464 1.259 226.768 9.75 been close to three times their level of 1986-7 and almost twice that 0 f 1991. In tenns of net cash Inflow, sales minus AVG 1990 6.013 2.153 246.795 11.81 redemptions. the increase in recent years IS even more startling. Net'Inflow for 1992 so far remams 2-3 times what it had been AVG 1991 8.078 3.595 309.732 9.22 in any year since 1986. On average. a net of some 7 billion a JAN 1992 13.484 7.248 375022 7.92 month has been pounng into eqUIty funds since the beginmng of theyear. FEB 1992 11 373 6.555 387.076 7.99 There exist, meanwhile, other sources of fuel for the market fire which. although less measurable. may even dwarf MAR 1992 15.448 7.914 383.557 8.60 mutual funds in magnitude. A pomter to one of those sources may perhaps. iromcally. be found In the anatomy of a recent AVG 1992 13.435 7.239 381.885 8.17 economic dIsaster, the Olympia & York bankruptcy, which may, along with the empty and half empty office building dotting the country, be taken as a symbol of the current sad state of the real estate market. The point IS, though. that those empty bUlldings were, over the past few years. the consumers of masSive amounts of Investment capital. Whatever one may thInk about the prospects for real estate recovery. 1t appears obvious that any growth In rentals over the next few years will go to filling existing vacancies not to new constructIOn. These dollars represent another aglomeration of funds which bas probably been finding, and may well contInue to find, ItS way into the equity market The future course of this new flow of funds IS of course unclear. How qUIckly could It dry up and thus. If alternative sources did not emerge. engender market weakness Or could the flow—along With econotnlc recovery–increase and thus continue to propel stock pnces to new high levels. We are dealing here. It seems to us. with a phenomenon of human behavior. and as always, technical work Will. we thInk. be helpful in deternuning the course of that behavioral phenomenon ANTHONY W TAB ELL, CMT Dow Jones Industnals (12 00) 3390 18 DELAFIELD. HARVEY. TABELL Siandard & Poors 500 (1200) 41456 Cumulative Index (5/21192) 7374.04 No statement or expression of opinion Of any other matter herein contained IS, or IS to be deemed 10 be, directly or indirectly, an offer or the solicltatton of an offerlo buy or sell any security referred to or menlloned The matter IS presented merely for Ihe convenience of Ihe subSCriber While we believe the sources of our information 10 be reliable, we In no way represent or guaranlee Ihe accuracy Ihereof nor of the slatements made herein Any actlon to be taken by the subSCriber should be based on hiS own Invesllgallon and Information Delafield. Harvey. Tabelt Inc. as a corporation and ItS officers or employees. may now have, or may later take. posrtlons or trades In respect to any secuntles mentioned m thiS or any luture Issue. and such poSition may be dlfferenl from any views now or hereafter expressed In thiS or any other Issue Delafield. Harvey, Tabellinc . which IS registered With the SEC as an Investment adVIsor. may give adVice to Its Investment adVISOry and other customers Independently of any statements made In thiS or In any other Issue FUl1her Information on any security menlloned herein IS available On request