MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY DECEMBER 12, 1997 (1)
Kerm's Note: Previous day's column had incorrect day listed.
Saturday, December 13, 1997
Bay Street dipped, with declines by brand name issues like BCE Inc. tempering gains by gold producers
By THE FINANCIAL POST
The Toronto Stock Exchange 300 composite index fell for a fourth day, dipping 3.04 points to 6641.89 after the Bank of Canada raised its benchmark interest rate 50 basis points to 4.5%. The index had fallen as much as 56.4 points earlier in the session. On the week the TSE 300 fell 82.48 points or 1.2%.
BCE Inc. (BCE/TSE), which accounts for 5.7% of the total market capitalization of the TSE 300, dropped 65› to $46.40 to help send the broader market lower.
Higher interest rates hobble profit growth for lenders by raising borrowing costs, while borrowers may also experience slower growth as they delay expansion plans because of rising rates.
Telecommunications-equipment makers Northern Telecom Ltd., which accounts for 3.2% of the TSE 300, and Newbridge Networks Corp. extended losses on concern weak Asian economies will erode corporate profits. Nortel (NTL/TSE) fell $3.35 to $128.65 and Newbridge (NNC/TSE) slipped $1.95 to $49.75.
On the broader TSE, declining issues outpaced advancers three-to-two. A total of 117.1 million shares changed hands, compared with 121.8 million on Thursday.
Gold producers, which account for 4.6% of the TSE 300, gained to help temper the losses in the broader market. Barrick Gold Corp., (ABX/TSE), which accounts for 36% of the gold subgroup, rose 85› to $23.65 after it said it will buy back as much as 10% of its shares, worth as much as $710 million.
Other major Canadian markets closed down. The Montreal Exchange portfolio index fell 1.96 points to 3374.88, a loss of 37.02 points or 1.1% for the week. The Vancouver Stock Exchange index fell 5.8 points, or 1%, to 593.78. For the week, it was down 23.8 points or 3.9%.
The major overseas markets ended mixed Friday, but all were down on the week.
London: Britain's leading stock index, capping a volatile week in quiet fashion, finished slightly higher after U.S. and Asian markets showed relative calm. The FT-SE 100 index closed at 5045.2, up 9.3 points or 0.2%, but down 97.7 points on the week.
Frankfurt: German stocks firmed up, rebounding from a selloff the day before. The Dax index closed at 4082.6, up 52.44 points or 1.3%, but down 87.48 points on the week.
Tokyo:Japanese stocks lost a modest amount of ground, weighed down by rekindled worries over Asian financial turmoil and a slide in U.S. high-tech stocks. The 225-stock Nikkei average closed at 15,904.3, down 145.85 points or 0.9%, and down 520.18 points on the week.
Hong Kong: Hong Kong stocks shrugged off early losses and closed at the day's highs in a technical rebound. The Hang Seng index closed at 10,614.66, up 194.44 points or 1.9%, but down 912.94 points on the week.
Sydney: The Australian stock market crumbled to a lower close with mining companies suffering the most. The all ordinaries index closed at 2494, down 22.8 points or 0.9%, for a loss of 50.78 points on the week.
HOT STOCKS
The shares of Bell Canada International Inc. (BI/TSE), which went public to great fanfare in October, closed Friday at $20.35, down $1.15, on volume of 138,140 shares and down $3.45 from their close at the end of last week. Telesystem International Wireless Inc. (TIW/TSE), also a former hot international stock, rose 50› to $20, on volume of 142,900 shares, but still down $1.50 from its close seven days earlier. The two stocks have lost one-quarter of their value from two months ago. The shares of Canada's four domestic wireless carriers have lost substantial value since October, plagued by declining expectations among investors. The country's two international carriers have followed suit.
Barrick Gold Corp. (ABX/TSE), up 85› to $23.65, on volume of 1.2 million shares. Royal Oak Mines Inc. (RYO/TSE), down 6› to $2, on volume of 194,478 shares. The price of gold on the Comex division of the New York Stock Exchange fell US$1.20 to US$282.80 an ounce. Whether or not prices continue to slide depends largely on how much gold European central banks decide to hold in their reserves. Recently, the banks have been selling off the precious metal but sources say they have mostly sold all the gold they want.
Pan American Silver Corp. (PAA/TSE), down 40› to $15.05, on volume of 37,270 shares. The price of silver rose US5› to US$5.86 an ounce. The price of the commodity has been climbing steadily on rumors that a group of investors is buying up supplies in a bid to force prices higher.
Newbridge Networks Corp. (NNC/TSE), down $1.95 to $49.75, on volume of 1.1 million shares. Northern Telecom Ltd.(NTL/TSE), up $3.35 to $128.65, on volume of 255,295 shares. ATI Technologies Inc. (ATY/TSE), up 15› to $30.15, on volume of 155,665 shares. Amid growing fears of continued market turmoil in Asia, technology companies continue to feel the heat. With their currencies falling against the US$, afflicted Asian countries can no longer afford to buy as much computer equipment. However, they also produce plenty of circuitry for North American high-tech companies. Software giant Newbridge continues to lose ground as it has substantial sales in the region. Since the beginning of October the South Korean won has declined 50% against the US$.
Geac Computer Corp. (GAC/TSE) up $1.85 to $41.85, on volume of 130,574 shares. The Toronto-based software maker continues to defy the technology sector's downward trend. Chalk that up to good management and limited Asian exposure.
BCE Mobile Communications Inc. (BCX/TSE), up $2.45 to $38.45, on volume of 29,355 shares. Three weeks after announcing a share issue, BCE Mobile yanked the issue Thursday, blaming the current drubbing of technology stocks. It seems investors think that was a good idea. BCE Mobile is Canada's largest provider of wireless communications.
Four Seasons Hotels Inc. (FSH/TSE), down $3.40 to $36.70, on volume of 40,500 shares. The company said Friday's decline is a case of mistaken identity. According to chief financial officer Douglas Ludwig, Four Seasons' stock price was hurt by a report by investment company Goldman Sachs & Co. that downgraded certain lodgings companies. Ludwig says the report was not critical of Four Seasons. Goldman is maintaining its "buy" recommendation on the stock, he said.
Maple Leaf Foods Inc. boosted its $129-million hostile bid for rival Schneider Corp. by 16% Friday and said it will consider a further sweetener if Schneider gets a higher offer. Toronto based Maple Leaf tabled the $149.4-million, $22 a share, cash or share offer after the Kitchener, Ont.-based hog processor told Maple Leaf executives it was receiving alternative offers from other interested companies. "They made an overture to us and said they wanted to talk," Schneider chief executive Douglas Dodds said. "Our response to them was that if they wanted to participate they should improve their offer." Sources close to Schneider say the company is hoping to agree on a friendly takeover for as much as $25 a share, or $170 million, over the weekend. Trading of the shares of both companies was halted Friday shortly before the closing bell so news of the new Maple Leaf bid could be disseminated. Before the halt, Schneider (SCDa/TSE) shares rose $1 to the 52-week high of $23, then settled back to close at $22.40, up 40› on the day. The family controlled voting shares (SCD/TSE) were unchanged at $21.75. Maple Leaf shares (MFI/TSE) fell 40› to $15.30 on thin volume.
Shares of Cameco Corp. fell sharply for a second day Friday as investors reacted to the surprise collapse of an important agreement on weapons-grade uranium from Russia. Cameco stock (CCO/TSE) dropped $4 to $42.50. The shares fell $3.25 on Thursday and have lost 14.6% of their value since Wednesday's close of $49.75.
BONDS
Canadian Bonds End Up On Rate Hike
Canadian long bonds posted a strong rally by Friday's close, but shorter-term treasuries softened after the Bank of Canada made its biggest short-term interest rate hike in more than two years.
"The market got its momentum going and kept on," said Harv Kalirai, analyst with I.D.E.A. in New York. The yield curve flattened after Canada's central bank boosted the key bank rate by 50 basis points to 4.5 percent, propping up a failing Canadian dollar.
Canada's 30-year benchmark bond jumped C$1.83 to C$127.57 to yield 5.995 percent.
The U.S. 30-year bond rose 33/32 to yield 5.93 percent. The positive spread between the two bonds narrowed to seven basis points from 10 basis points at the close of trading on Thursday.
The hike came after the Canadian dollar on Thursday weakened to US$0.6998 -- its lowest level in 11 years. The Canadian dollar immediately strengthened on the Bank of Canada's move and closed at C$1.4197 (US$0.7044).
"The Canadian dollar is finding a little bit of stable footing with the rate hike," Kalirai said. The Bank of Canada said in a statement that the move was aimed at calming markets.
"This action by the Bank is designed to contribute to more settled domestic markets in which investors can focus more confidently on the strong fundamentals favouring non-inflationary growth in the Canadian economy," it said.
In other prices, Canada's 10-year benchmark bonds rose C$0.67 to C$111.47 to yield 5.666 percent. The key two-year bonds slipped C$0.15 to C$99.56 to yield 5.012 percent.
U.S. MARKETS
Old St. Nick may live in the North Pole and Nordstrom's may be the destination for those who are more realistic about his existence, but the key to the much-hoped-for and now-imperiled "Santa Claus rally" could very well lie in the East. In Japan, to be specific.
Assuming there are no major catastrophes overseas (though definitions of what constitutes disaster are changing almost daily) many players expect U.S. markets to mount some recovery after this week's downturn.
"The selling was too indiscriminate; the markets will bounce back," said Michael Driscoll, block trader at Hambrecht & Quist. "Very shortly, perhaps as early as next week, people will start buying in anticipation of the 'January effect.' "
The "January effect" occurs when stocks that are losers in a given year are sold off in December due to tax considerations. In recent years, these stocks often bounced in January as fund managers returned to the names. Driscoll believes the effect has shifted to December as "people are trying to get in front of the January players."
The trader was also buoyed by the long bond's decisive fall through the 6% yield level on Friday.
"It's very constructive (and) makes a real compelling argument for stocks," he said. "Where stocks may have looked rich at 6.5% in valuation models, you plug in 5.5% and stocks have got to look more attractive. That's a big move."
Technical factors aside, a litany of events next week could shake Wall Street out of its recent stupor or send markets tumbling further. Ironically, the Fed's Open Market Committee meeting on Tuesday isn't one expected to be one of them.
Usually traders break out the antacids when the central bankers meet. But this time around, it is expected to be a non-event. A lack of inflationary pressures at home and the continued unrest in international markets has Wall Street convinced Alan Greenspan and his cohorts will leave interest rates unchanged.
More than the FOMC meeting, or Korea's ongoing financial debacle, many market players say the key event next week is Tuesday's release of the latest fiscal stimulus package from the Japanese government. Details are sketchy at this point, but traders believe the Japanese must take decisive action to revitalize its flagging economy.
"The market is obviously very concerned we may get more of the same from Japan," said Bill Meehan, chief market strategist at Cantor Fitzgerald, referring to the Bank of Japan's thus far lackluster proposals. "If Japan does not move to get its economy going forward, the yen will continue to fall; that will increase the risk of pressure reaching China. And if the Chinese devaluate, it's 'Katy bar the door.' "
Even an ultra-optimist like Al Goldman, director of market analysis at A.G. Edwards, expressed concern about the events in Japan.
"If the fiscal-stimulation program is bold and tough, the financial markets will like it, and will assume the worst things won't happen," Goldman said. "If they don't really get down to the nitty gritty and attack problems, financial markets will be disappointed."
While Japan will be paramount, Korea's presidential elections also are on the docket on Thursday. There are fears that a newly elected government will seek to renegotiate the $55 billion bailout package engineered by the International Monetary Fund. Still, traders say they're focused on Japan.
"Korea is in virtual disarray, we can deal with that," Meehan said. "But if Japan can't get its economy out of reverse, it won't be good for global markets and we won't be immune."
Other "known" events next week include: the industrial production and capacity utilization figures on Monday; the consumer price index on Tuesday; international and jobless claims data on Thursday; and the release of the minutes of the November FOMC meeting on Friday.
On the earnings front, technology stocks could get some direction from earnings of two of the indusrty's mainstays. Micron Technology (MU) posts fiscal first-quarter earnings on Tuesday; expectations are that the chip maker will earn 9 cents per share. 3Com (COMS) is projected to post earnings of 4 cents per share when it reports on Thursday. The networker warned Wall Street on Dec. 3 that its fiscal second-quarter earnings would be marginal.
AFTER THE BELL
Anchor Gaming (SLOT) said reports that it violated securities law are "without merit" and that its "business fundamentals" remain unchanged. The company also approved a 500,000 share repurchase program. In addition, Anchor Gaming said its second quarter earnings will be $1.10 to $1.20 per share; Wall Street was looking for $1.20.
Semiconductor equipment maker Credence Systems (CMOS) announced plans to repurchase up to 500,000 shares of its stock.
Kellogg Co. (K) approved the buyback of an additional $400 million in shares.
FRIDAY'S MARKETS
Ongoing worries about exposure to Asia's faltering markets whipped technology issues for the fourth straight session, sending the Nasdaq down 22 points. A surging bond market helped the Dow and broader indices fight the tumult, but all major bourses ended with losses, albeit minor ones compared to the Nadsaq. The Dow fell 10.69 points and the S&P 500 dipped 1.55.
The modest moves in major indices (save the Nasdaq) belie the tense battle that was unfolding on Wall Street Friday. While players have turned negative on technology in near unanimity, the great debate continues to rage between the bears and the bulls about the overall direction of broader markets. As a result, it was a whipsaw session for the Dow and S&P 500 while the Nasdaq sustained another steady wave of selling pressure.
The Nasdaq Composite Index (COMP) rose briefly in the morning session in conjunction with the Dow, then turned lower as the morning progressed. At about 12:45 p.m. the index was downnearly 30 points and seemed headed for its fourth straight decline of at least 1.5%. The index was able to scamper off its low in the afternoon session, closing down 21.94 points, or 1.4%, at 1,536.60. For the week, the tech-rich index lost nearly 6%.
The blue chip Dow Jones Industrial Index ($INDUA) suffered through a much more volatile session than the Nasdaq. After rising more than 50 points at the open in concert with a rallying bond market, the Dow reversed course and chopped its way through the morning. At about 11:15 a.m. EST, the index turned sharply lower and tumbled more than 64 points below its opening price at about 12:30 p.m. The afternoon session was a march back to break-even, which the Dow breached at about 2:30 p.m., and then again heading into the last hour of trading.
The last 60 minutes of the session provided a good microcosm of the day's trading, as the index flipped-flopped around the unchanged level several times, before closing down 10.69 points at 7,838.30. The Dow suffered its first string of five straight trading days with declines since January 1997 and the first full week of consecutive losses since the week of June 10, 1996. For the week, the blue chip proxy fell 3.8%.
The S&P 500 (SPX) mainly tracked the Dow on the day, finishing down 1.55 points to 953.39. For the week, the index fell 3.1%. The Russell 2000 Index (RUT) slid 2.07 points on the session, closing at 422.63, and lost 3.5% for the week.
On the NYSE, 592 million shares traded hands while advancing issues bested declining stocks by the slimmest of margins. In Nasdaq trading, 760 million shares were exhanged and there was no doubt about the breadth: Declining stocks outnumbered advancers by a 25-to-18 margin.
Bond prices surged again, rising nearly 7/8 of a point, thanks in part to an unexpected drop in November's Producer Price Index. The yield of the benchmark 30-year Treasury bond, which moves in the opposite direction of its price, fell to 5.94%, its lowest level since October 1993.
The Labor Department reported that the PPI fell 0.2% last month overall and 0.1% in the core, which excludes the volatile food and energy sectors. Wall Street economists had forecast a 0.1% rise in the overall index and a similar rise in the core rate.
Also helping the bond market was the University of Michigan's report that consumer sentiment fell to 103.0 in December from 107.2 a month prior.
TECHNOLOGY STOCKS
Microsoft (MSFT) shed 2 5/16 to 136 3/4 after a federal judge ordered the software marker to stop bundling its Internet browser with its Windows 95 operating system. Microsoft officials declined to comment on the ruling, but most analysts doubted the decision would slow the roll-out of Microsoft's Windows 98 operating system, or any other product.
Shares in browser rival Netscape Communications (NSCP) rose 1 5/8 to 27 7/8 on the judge's ruling.
Cisco Systems (CSCO) tumbled 6 1/8 to 76 9/16 on word of some insider selling among the networker's senior management.
Among other bellwether tech names, Intel (INTC) slid 1 5/16 to 70 1/2, 3Com (COMS) fell 1 to 34 5/16, Dell Computer (DELL) dipped 7/8 to 88 1/4, and Ascend Communications (ASND) fell 1 15/64 to 27 9/64. Sun Microsystems (SUNW), meanwhile, rose 11/16 to 35 11/16.
In software, Adobe Systems (ADBE) fell 3 13/16 to 35 1/4 and PeopleSoft (PSFT) closed down 2 7/8 to 31 5/8, while Oracle (ORCL) ticked up 13/16 to 22 3/4.
In NYSE trading, IBM (IBM) fell 1 11/16 to 99 15/16 and fellow Dow component Hewlett-Packard (HWP) slid 1/8 to 60 15/16. Computer Associates (CA) fell 1 1/2 to 47 1/8, Texas Instruments (TXN) stumbled 1 1/16 to 41 1/16, and National Semiconductor (NSM) closed down 2 1/16 to 24 5/16 in heavy trading.
Bucking the trend was Compaq Computer (CPQ), which rose 3/8 to 56 3/8 after its board authorized an increase in the PC maker's buy-back program. The decision will allow the firm to proceed with a 2-for-1 stock split approved in October.
The "disaster du jour" Friday was Electronics for Imaging (EFII), which plummeted 24 1/8 to 14 7/8. The company said it expects fourth quarter earnings of just 6 cents per share, excluding acquisition charges, far off the 49 cents Wall Street was expecting from the printing-system designer. Lehman Brothers cut its rating on the stock to "neutral" from "buy." Prudential Securities lowered its rating to "hold" from "buy," then reversed itself due to the extent of the stock's decline.
In sympathy, Splash Technology (SPLH) fell 2 3/4 to 21 3/4 despite saying it would still be able to meet its numbers.
Qualcomm (QCOM) was another big loser in tech-land, falling 8 11/16 to 50 11/16. Schroder & Co. sparked the selling by lowering its recommendation on the manufactuer of wireless telecommunications products to "perform in line" from "outperform." Qualcomm's exposure to Korean markets were cited in the downgrade.
Elsewhere in the wireless space, Nokia (NOK/A) fell 1/8 to 68 15/16, Lucent Technologies (LU) slipped 1 1/4 to 75 1/8, Ericsson (ERICY) slid 1/2 to 36 1/16, and Motorola (MOT) closed down 7/16 to 55 7/8.
Another tech stock punished Friday because of its exposure to Asia was circuit-board manufacturer Sanmina (SANM), which fell 3 5/8 to 57 7/16. The fears of a slowdown in the PC industry also weighed on shares of once-high-flying Jabil Circuits (JBIL), which fell 5 5/16 to 31 1/2.
Veeco Instruments (VECO) slid 7 to 19 7/8 before being halted after the semiconductor equipment maker warned that its fourth quarter earnings will be as much as 9 cents below the 49 cents analysts were expecting.
Applied Materials (AMAT) fell 1 3/16 to 26 1/8, KLA-Tencor (KLAC) slid 1 15/16 to 34 5/16, Teradyne (TER) fell 2 13/16 to 27 3/8, and Asyst Technologies (ASYT) closed down 1 31/32 to 21 1/8 after Needham & Co. downgraded it to "buy" from "strong buy." On the upswing was ASM Lithography Holdings (ASMLF), which rose 1 3/8 to 59 3/4.
Among chip makers, Lattice Semiconductor (LSCC) fell 4 5/16 to 51 amid continued weakness stemming from its profit warning yesterday. Gruntal & Co. lowered its earnings estimates on Lattice. Most other chip makers suffered fractional declines, though SGS-Thomson Microelectronics (STM) fell 1 1/8 to 54 1/8.
Gilatech (GLIA) fell 2 7/8 to 7 5/8 before being halted with "news pending."
ACTIVE ISSUES
The Dow's decline was led by Chevron (CHV), which fell 2 1/16 to 75 1/2. Other Dow decliners included Eastman Kodak (EK), off 1 1/2 to 54 1/8, and DuPont (DD), down 1 1/2 to 60 15/16.
Dow gainers were led by Goodyear Tire & Rubber (GT), which rose 1 1/4 to 65 7/8; Coca-Cola (KO), which jumped 1 5/16 to 64 15/16; and J.P. Morgan (JPM), up 1 1/16 to 117 1/16.
Big bank stocks were mixed. At the extremes were Citicorp (CCI), which succumbed to worries about its Asian exposure and fell 1 7/16 to 126 13/16, while BankBoston (BKB) rose 1 3/8 to 93 9/16.
Drug stocks were mainly weaker, led by Dow component Johnson & Johnson (JNJ), which fell 1 3/16 to 64, and Warner-Lambert (WLA), which slid 1 1/2 to 108 3/4, although Pfizer (PFE) managed to rise 9/16 to 75.
Medical-device maker Sofamor Danek Group (SDG) dropped 3 13/16 to 59 1/4 after an FDA panel voted against approval of the company's spinal-fusion cage Novus LC device. Speculation of such a ruling sent shares of Sofamor Danek down nearly $5 per share on Thursday.
The biggest winner of the vote was Spine-Tech (SPYN), whose shares jumped 6 7/8 to 44 1/4. Hambrecht & Quist upgraded Spine-Tech to "strong buy" from "hold."
MedImmune (MEDI) rose 1 7/16 to 40 after BA Robertson Stephens upped its 1997 and 1998 earnings forecasts on the biotech firm.
Ford Motor (F) rose 11/16 to 46 15/16 thanks to an upgrade from Salomon Smith Barney to "outperform" from "neutral."
Airline stocks tried to shake off Thursday's turbulent session, but ultimately faltered. US Airways (U) slid 1 1/4 to 61 1/2, Delta (DAL) fell 13/16 to 116 15/16, and United Air Lines operator UAL Corp. (UAL) closed down 1 3/4 to 84 1/8. Bucking the trend was Southwest Airlines (LUV), which rose 13/16 to a new 52-week high of 25 5/8.
Able to bounce back from weakness the prior day was Federal Express (FDX), which rose 2 1/8 to 64 1/2. After the bell Thursday, the company posted fourth quarter earnings of 91 cents per share, excluding a one-time gain of 11 cents. That was 4 cents shy of official expectations but not as bad as some "whisper" numbers. In addition, FedEx has reportedly made an important bargaining compromise with its pilots. FedEx shares tumbled 5 during trading on Thursday.
First State (FSBT) rose 2 3/4 to 22 after agreeing to be acquired by Regions Financial (RGBK) in a stock swap valued at $161 million. Regions Financial closed up 1/8 to 41 7/8.
Media giant Gannett (GCI) fell 1/8 to 59 5/16 despite reporting that it expects fourth-quarter and 1998 earnings to be in line with expectations. CS First Boston lowered its rating on Gannet to "buy" from "strong buy."
Fine Host (FINE) continued its recent, still-unexplained tumble, falling another 5 3/8 to 10 1/8 before being halted. Salomon Smith Barney and Donaldson Lufkin & Jenrette separately lowered ratings on the stock to "neutral" from "buy."
Green Tree Financial (GNT) fell 1 3/8 to 22 1/2 in heavy trading following the resignation of its president and chief operating officer, Robert Potts.
Consolidated Edison of New York (ED) rose 2 1/16 to 40 after the utility's board authorized the repurchase of up to $1 billion of its common stock.
Weakness in its home markets sent shares of Asia Pulp & Paper (PAP) down 1 3/16 to 10 5/16.
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