MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, MARCH 12, 1998 (1)
Friday, March 13, 1998
Bay Street stocks shrugged off a tepid Wall Street performance, powering past 7400 for the first time and setting their fourth straight record as investors' confidence grew
The Canadian market got off to a lacklustre start, trading in negative territory for most of the morning session. But it started to gather strength around midday and never looked back, fuelled by investor appetite for interest-sensitive stocks and sharp gains in some blue-chip manufacturing stocks.
The Toronto Stock Exchange 300 composite index rose 56.45 points, or 0.8%, to 7402.29, after hitting an intraday low of 7333.3. About 109 million shares changed hands on the TSE, down from about 141 million shares traded on Wednesday.
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The gain was also good enough to outpace New York, where the Dow Jones industrial average dropped 16.19 points, or 0.2%, to 8659.56. "I'm breathless," quipped Richard Hutcheon, president and chief investment officer at OHA Investment Management Ltd., in reaction to the market's bull run. ÿFully invested in the market, the money manager said he is just sitting on
the sidelines enjoying the ride.
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Still, he is troubled that the market is being driven primarily by a select group of stocks: the big banks, telephone companies and the likes of Northern Telecom Ltd. Indeed, the blue-chip TSE 35 index closed up 0.9%, while the TSE 200, which includes more mid-sized stocks, gained only 0.2%. ÿ"You'd like to see the buying more broadly based" to indicate sustainable
strength, Hutcheon said.
The TSE financial services index rose to a 52-week high of 9679.89, with Toronto Dominion Bank (td/tse) gaining $1.15 to $64.25. ÿThe bank stocks, despite their record-setting gains, remain inexpensive relative to the rest of the broader market, said John Kellet, vice-president equities at Royal Bank Investment Management Inc. They are trading at about 14 times estimated earnings, compared with more than 20 times for the overall TSE 300, the fund manager said. In addition, the bank stocks remain cheap compared with their valuations in the 1960s, the last period of low interest rates and inflation, Kellet noted.
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The Montreal Exchange market portfolio kept on its record pace, adding 27.09 points, or 0.7%, to 3774.3.
The Vancouver Stock Exchange composite index gained 1.49 points, or 0.2%, to 622.63.
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For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
REFERENCE: Canadian Market Summary
canoe2.canoe.ca
On Wall Street, stocks ended on a mixed note, with the blue chips the target of profit-taking after back-to-back record closes and the Nasdaq composite index posting a modest gain, rising 7.21 points, or 0.4%, to 1764.06. In the broader market, advancing issues led declines by a small margin on moderate volume of 598 million shares on the New York Stock Exchange.
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Investors also paused ahead of today's U.S. producer price report, while some transferred their enthusiasm - and money - into bonds.
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"It's a healthy day. We are not spiking up or down, but we are marking time and the market needs a rest," said Tony Dwyer, chief market strategist at Ladenberg Thalmann in New York. "What's exciting today is the bond market is acting very strongly, the [long bond] yield is well below 6%."
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The Dow index was weighed down by weakness in traditional investor favorites like Chevron Corp., General Motors., Merck & Co. and Procter & Gamble Co.
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Chevron (chv/nyse) was off US$1 1/16 at US$82 15/16, GM (gm/nyse) fell US$1 3/16 to US$71 15/16, Merck (mrk/nyse) was down 7/8 at US$129 1/16 and P&G (pg/nyse) fell US$2 3/8 to US$84 3/16.
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The rally in the Nasdaq index was fueled by Amgen Inc. (amgn/nasdaq), which gained US$3 3/8 to US$5 3/8 after analysts said the company would benefit from relaxed new federal reimbursement guidelines for patients taking its Epogen drug.
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Major overseas markets closed mostly lower.
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London: Britain's benchmark index lost ground for the first time in five sessions as Dow losses and a strong pound knocked the market back. The FT-SE 100 closed at 5794.8, down 35 points or 0.6%.
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Frankfurt: German stocks drifted before recovering slightly in late trade. The Dax 30 index closed at 4839.6, up 6.84 points or 0.14%.
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Tokyo: The Japanese market closed lower amid investor disappointment over a lack of government action to revive the economy. The 225-share Nikkei average closed at 16,575.22, down 180.92 points or 1.1%.
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Hong Kong: Stocks tumbled as cautious investors took profits when the market failed to break through key resistance levels. The Hang Seng index lost 216.38 points, or 2%, to 10,902.47.
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Sydney: Australian stocks closed higher, underpinned by News Corp., which was bid higher after its American depositary receipts soared Wednesday on Wall Street. The all-ordinaries index closed at 2719.5, up 4.7 points or 0.2%.
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B of M stays bullish on Canada -- By DAVID THOMAS -- Economics Reporter The Financial Post
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The effects of the Asian financial crisis will not be severe enough to knock Canada and the rest of the world's leading economies off their strong expansion, according to a forecast released yesterday by Bank of Montreal.
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Canadian gross domestic product will expand 3.6% in 1998, the bank estimated. That forecast retains the bank's position as the most bullish among economics groups at the big banks.
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Moreover, B of M is expecting to see the economy continue to expand rapidly, averaging annual growth of 3.3% between 1996 and 2001. Last year, it grew by 3.8%.
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"The Canadian economy remains robust at present," the report concluded. "We expect to see real GDP continue to rise above its longer-term potential rate."
The economy's potential growth rate is about 2.75%, by its estimate. Above that, the economy generally tends to start to overheat, leading to inflationary pressure and higher interest rates, which push growth back down below potential.
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Solid underpinnings for growth include low inflation and interest rates, strong jobs growth and an improving fiscal position for the federal government.
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Sectors that will outperform the economy are machinery, business services and plastics manufacturing. ÿ"We expect that machinery producers will lead all sectors in terms of output growth in 1998." The sector is due for an 11.5% expansion this year and a still-strong average growth of 5.5% from 1999 through 2000.
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In contrast, mining, forestry, tobacco, beverages and public services are expected to see below-average growth.
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The bank is counting on a 3.5% expansion in the global economy this year and growth of "close to 3%" in the U.S.
The report said Canada can look forward to one million new jobs within three years, taking the jobless rate from 8.9% now to 7.5%.
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February's statistics, due this morning, are expected to show the rate edged down to 8.6% or 8.7% as the economy springs back after January's ice storm in central Canada.
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The lowest big bank forecast for GDP growth in Canada this year comes from Bank of Nova Scotia at 3%. Canadian Imperial Bank of Commerce expects growth of 3.3%, but Jeffrey Rubin, chief economist at the bank's subsidiary CIBC Wood Gundy Securities Inc., is more pessimistic, calling for 2.8%.
He doesn't expect much of an impact from Asia but predicted the increase in the bank rate from 3.25% to 5% since last June will boost the savings rate and slow consumer spending.
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