Stock Market Bellwether—General Motors

Abstract

FOR YEARS GENERAL MOTORS has proven itself to have been the bellwether of stock market trends. Whenever four months pass without General Motors reaching new highs it has been wise seriously to consider that the stock market will turn down; and, conversely, whenever four months have passed without General Motors declining to new lows it has been wise seriously to conclude that the stock market trend has turned upward. In recent years the trend signals given by General Motors seem to have been as good as almost any gimmick and/or theory and widely discussed econometric of which the writer has heard. General Motors did a good job in 1959, when on November 9 it said Sell; it did a reasonably good job after the October, 1960 stock market low; and General Motor's April 13, 1962 sell signal for stocks generally did about as well as did any of the more highly touted signals which have apparently been watched more closely by the experts. Because of the fallibility of all barometers and most thermometers in stock market forecasting, the writer prefers to emphasize the past history of the signals given by General Motors common stock since early 1929, and to mention with less emphasis the fact that this bellwether gave a signal generally to buy common stocks on October 26, 1962, when the Dow-Jones Industrial Average closed at 569.02. Maybe one of the reasons for feeling that this apparently very reliable indicator of stock market trends should be considered as a good stock market tool, rather than as the only barometer to be read and to be considered, is the fact that since 1956 stock market cycles have become shorter and more speculative. General Motors signalled a bear market last April and a new bull market this October. The ups and downs in stock prices since 1956 have become shorter, and the recent down and now the up is shockingly shorter. We have seen nothing like it in our time. Maybe the shortened stock market cycles are all part and parcel of the increased speculation in our aging era of purposeful monetary inflation; but that is another subject. The accompanying chart attempts to portray the length of stock market downswings and upswings since 1929 without picturing their magnitude. The briefest look at the chart shows that the time of both stock market downswings and upswings has been growing shorter and shorter. Since 1956 the severe declines in stock prices and the substantial upswings in the stock market have ended almost before they were recognized. Price swings in the stock market have accomplished in months what it used to take years to do. Probably improved communication facilities, as well as the purposeful monetary inflation of the Welfare State, are among the reasons for this phenomenon. However, it is probably enough