MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, FEBRUARY 23, 1998 (1)
Tuesday, February 24, 1998
Gulf peace prospects and a lift from high-tech stocks helped push the Nasdaq composite past its Oct. 9 record. Canadian stocks were mixed as losses in gold and oil stocks were offset by gains in bank issues.
The broader U.S. market rose after the United Nations reached an accord with Iraq on inspections of suspected Iraqi weapons sites, averting a threatened U.S. military strike.
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However, the Dow Jones industrial average fell 3.74 points to 8410.2.
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The Standard & Poor's 500 composite index rose 3.93 points, or 0.4%, to a record 1038.14.
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The diplomatic agreement with Iraq removes a threat to the near-perfect scenario of steady growth with low inflation that underpinned the U.S. market's rise of the last three years, investors said.
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Microsoft Corp. rallied, pushing the Nasdaq composite index past its Oct. 9 record. The tech-heavy Nasdaq climbed 23.63 points, or 1.4%, to a record 1751.76.
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With the gain, the Nasdaq joined the Dow and S&P 500 in topping records set before Asia's financial crisis triggered the Oct. 27 plunge in the stock market. The Nasdaq is up 12% so far this year, trouncing the S&P 500's 7% advance.
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Microsoft shares (MSFT/NASDAQ) rose US$4 1/16 to US$81 5/8 after a two-for-one stock split.
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Intel Corp. (INTC/NASDAQ) gained $US2 3/8 to US$94 3/16 and Dell Computer Corp. (DELL/NASDAQ) continued its recent surge, gaining US$4 to a record US$130 15/16.
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The Dow was held back by the performance of Chevron Corp. and Exxon Corp. as the Iraqi accord sent crude oil prices to their lowest since 1994. The two stocks subtracted 16 points from the average.
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"The bears were wrong; they had jumped to the conclusion that somehow Asia was going to bring the technology sector to its knees," said Joseph McAlinden, chief investment officer at Dean Witter InterCapital Inc.
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Still, McAlinden prefers basic industrial stocks, like metals and heavy capital equipment companies. They are out of favor now but will do well in the next six months, he said.
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Canadian stocks were mixed, with losses in gold and oil producers on plummeting commodity prices tempered by gains in bank issues.
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"The Toronto market is taking it on the chin from oil, gold and silver prices," said Rolie Bradley, an institutional salesman with Maison Placements Canada Inc.
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The Toronto Stock Exchange 300 composite index rose 21.45 points, or 0.3%, to 6942.19.
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Petro-Canada (PCA/TSE) slipped 50› to $26, Talisman Energy Inc. (TLM/TSE) lost 65› to $39.80 and Gulf Canada Resources Ltd. (GOU/TSE) slid 35› to $7.30 on lower crude prices.
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Canadian Pacific Ltd. (CP/TSE), which has a majority stake in PanCanadian Petroleum Ltd., fell $1.10 to $39.50. Canadian Pacific accounts for 2.4% of the TSE 300. PanCanadian Pacific (PCP/TSE) fell 45› to $20.30.
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Barrick Gold Corp. (ABX/TSE) fell 60› to $25.70 and Placer Dome Inc. (PDG/TSE) slipped 10› to $16.65 as gold for April delivery fell US$4 to US$294.70 an ounce on the Comex division of the New York Mercantile Exchange.
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Bank of Nova Scotia (BNS/TSE) gained 95› to $34.75 and Canadian Imperial Bank of Commerce (CM/TSE) rose $1.10 to $44.95 on expectations that steady interest rates will help maintain bank profits.
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Bank of Montreal (BMO/TSE) climbed 80› to $75 and Toronto-Dominion Bank (TD/TSE) jumped up $1.75 to $61.95. National Bank of Canada (NA/TSE) rose 75› to $24.05.
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Other Canadian markets were mixed.
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The Montreal Exchange portfolio rose 10.69 points, or 0.3%, to 3577.73.
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The Vancouver Stock Exchange fell 12.62 points, or 2%, to 617.09.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
REFERENCE: Canadian Market Summary
canoe2.canoe.ca
Major international markets ended mixed.
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London: British shares fell as profit-takers moved in as oil stocks dropped and Wall Street eased from recent near-record peaks. The FT-SE 100 index closed at 5,702.8, down 48.8 points or 0.9%.
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Frankfurt: Germany's blue-chip Dax index closed at a record high of 4,657.54, up 54.89 points or 1.2 %.
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Tokyo: Japanese stocks closed moderately lower. The 225-stock Nikkei average fell 146.75 points, or 0.9%, to 16,609.49.
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Hong Kong: Stocks climbed to a higher close, spurred by gains in index heavyweight HSBC Holdings ahead of its 1997 results. The Hang Seng Index added 85.42 points, or 0.8%, to end at 10,685.21, after earlier hitting a high of 10,871.03.
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Sydney: The Australian stock market ended firmer, aided by a positive U.S. lead and some healthy corporate earnings. The all ordinaries index closed at 2,655.1, up 10 points or 0.38%.
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Martin's budget fight got good economic luck- By DAVID THOMAS - Economics Reporter The Financial Post
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Most economists expect Finance Minister Paul Martin today to bring in Ottawa's first balanced budget since 1970, when Pierre Trudeau was a first-term prime minister.
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Spending cuts have been at the heart of the Liberals' attack on the deficit, which was chopped by a record $19.7 billion in the fiscal year ended March 31, 1997.
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But the economy has powered ahead faster than expected, making Martin's job look a little too easy, said David Rosenberg, senior economist at Nesbitt Burns Inc.
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"It's been a large dose of good management, but it's also been a large dose of good luck," Rosenberg said of Martin's deficit battle.
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The danger is that the wind could easily change direction in another year and make things tougher than expected, he said. "Let's face facts, we've probably seen the peak for the current [business] cycle."
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Rosenberg and Nesbitt Burns are forecasting a budget surplus of about $2 billion for the next fiscal year, but calculate Martin could have been looking at a $14-billion deficit if not for the economy's helping hand.
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"Good luck in the form of lower than expected interest costs and the upswing in economic activity is the reason budgetary surpluses have arrived fully two years ahead of schedule," Rosenberg said in a recent budget preview report.
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The Liberals have benefitted from low interest rates, which reduce interest charges on Ottawa's debt.
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Last February's budget assumed an average yield of 4% on the three-month treasury bill and 7.1% on 10-year government bonds. The two rates were substantially lower at 3.3% and 6.1%, respectively.
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While the interest rate surprises were beneficial, the boost has been about twice as big from a better than expected performance on the economic front, Rosenberg said.
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The last budget assumed gross domestic product growth of 3.2% for 1997. December GDP figures aren't due until next Tuesday, but most estimates peg full-year growth at 3.7% to 3.8%.
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A boom in the retail sector last year, with sales up 7.3%, was joined by soaring wholesale trade figures and strong growth in employment, housing and construction.
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Another big plus in Martin's favor this past year was soaring corporate profit growth. After a 3.5% decline in 1996, growth in pretax profit grew 18%, Rosenberg said.
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Robert Normand, senior economist at L‚vesque Beaubien Geoffrion Inc., agreed the Liberals are netting a major windfall from 1997's booming economy.
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"Stronger growth and lower interest rates should make a difference of $2 billion to $3 billion in 1997-1998," Normand said in a report last week.
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The surplus could run as high as $5 billion in today's budget. But revisions could wipe that surplus away, leaving the government with a balanced budget, he said.
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Steady earnings seen at banks -- Growth in volume expected to offset trading, brokerage slippage -- By RICHARD BLACKWELL - Financial Services Reporter The Financial Post
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Canada's big banks begin unveiling their first-quarter earnings today, and analysts expect solid, if unspectacular, profit growth at most of them.
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Bank of Montreal and Bank of Nova Scotia lead off today, with B of M set to release results just before its annual meeting gets under way in Winnipeg.
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Toronto Dominion Bank and National Bank of Canada come clean on Thursday, and the two largest banks, Royal Bank of Canada and Canadian Imperial Bank of Commerce, pull up the rear on March 5.
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While trading revenue may reflect the pressure of Asian turmoil, and brokerage income may be hit somewhat because of market gyrations in the past few months, the growth in business volume for most banks will be enough to generate solid earnings.
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"I think that earnings growth for most of the banks will continue," said Mike Ancell, analyst with Edward D. Jones & Co. in St. Louis. He predicts average earnings gains of about 10% over last year's first quarter, although "trading operations, because of what's been going on in Asia, will be a little weak."
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Ancell said he expects the best performance out of Royal. It should report profit growth well over 10%, he said.
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Consensus estimates from analysts show bank watchers expect increases in year over year earnings per share to range from 2% at CIBC to 17% at National.
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Mark Maxwell, analyst at CIBC Wood Gundy Securities Inc., said he expects results slightly above the consensus averages, mainly because net interest margins should be a little wider because of higher rates.
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Another analyst, who did not want to be identified, was less enthusiastic about the group, suggesting the "tone will be decidedly mixed."
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Expectations for CIBC's results are generally low because it will probably take a charge against earnings for expenses incurred in its takeover of New York investment bank Oppenheimer & Co., which closed during the quarter. A portion of $75 million in restructuring costs will probably trim profit in the first quarter.
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Slower underwriting activity in the fourth quarter could also hurt CIBC more than the other banks.
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Scotiabank could take a hit from its extensive Asian operations, although the bank has said it intends to stay active in the region over the long term.
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Most banks have gradually reduced loan loss provisions over the past few years, to the point at which they can't go much lower. Indeed, the banks' regulator put pressure on them late last year to take advantage of the situation and jack up general provisions to protect themselves if lending soured.
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This year, the only bank that could gain from a drop in loan loss provisions is National, one analyst said, because "it has been provisioning at higher levels for the last couple of years."
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Bank stocks have been buoyant in the past month, thanks in part to the proposed merger announced Jan. 23 by Royal and B of M.
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"The fundamentals are good and I think there's more merger activity in the wings," Ancell said. "Those are two things that have been driving bank stocks in the U.S. and they're driving bank stocks in Canada too."
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The merger issue will undoubtedly be discussed at B of M's annual meeting today. Shareholders will also get a chance to vote on nine proposals from Montreal activist Yves Michaud - the same ones that have been voted down by shareholders at Scotiabank, TD and CIBC.
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Michaud's proposals will be presented by Marie Rousseau, one of the executives of his Montreal shareholder protection association.
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Michaud said yesterday he has been buoyed by the decision of management at Laurentian Bank of Canada to support two of his proposals when they are presented at its annual meeting next week.
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B of M stock (BMO/TSE) closed up 80› yesterday at $75. Scotiabank (BNS/TSE) was up 95› at $34.75, while TD (TD/TSE) rose $1.75 to $61.95. National (NA/TSE) was up 75› to $24.05, CIBC (CM/TSE) rose $1.10 to $44.95 and Royal (RY/TSE) was up 25› to $81.95.
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