MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 2, 1998 (4)
COMPLETE MARKET OVERVIEW
Dow's Date With 9,000 Has Look of Destiny
Wall Street shares rose to records as optimism spread that the flood of cash into mutual funds will not end soon. Bay Street broke out of a rut to close higher for the first time this week
The Dow Jones industrial average surged 118.32 points, or 1.3%, to a record 8986.64.
"Money is chasing money," said William O'Connor, manager of Milwaukee-based Marshall Large-Cap Growth & Income Fund. "Money managers don't get paid to sit on cash, so they're putting it into stocks that are going up. The pressure to perform is high."
The Standard & Poor's 500 index climbed 11.86 points, or 1.1%, to a record 1120.01.
The Nasdaq composite index rose 5.3 points, or 0.3%, to a record 1852.96.
About 675 million shares changed hands on the New York Stock Exchange, down from about 678 million shares traded on Wednesday.
Lucent Technologies Inc. (lu/nyse) rallied US$3 1/2 to US$69 7/16 after the company's two-for-one stock split took effect. The telecommunications equipment firm's stock has climbed 75% this year on optimism that demand for equipment will surge as phone companies update networks and expand cellular service.
Drug stocks advanced on expectations that new products will spur profits. Cor Therapeutics Inc.'s Integrillin heart drug took a step toward becoming the first challenger to Centocor Inc.'s ReoPro with a regulatory finding that the Cor drug is "approvable." Cor's stock (corr/ nasdaq) jumped US$92 7/32 to US$22 5/16. Centocor (cnto/nasdaq) fell US$2 1/4 to US$44. Merck & Co. (mrk/nyse) rose US$2 1/2 to US$132 3/8. On Wednesday, the drug maker won U.S. Food and Drug Administration approval of a new use of a cholesterol-lowering drug. Pfizer Inc. (pfe/nyse) rose 7/8 to US$99 1/16, Glaxo Wellcome PLC's
American depositary receipts (glx/nyse) rose 9/16 to US$57 5/16, Eli Lilly & Co. (lly/nyse) jumped 5/16 to US$59 3/4 and Schering-Plough Corp. (sgp/nyse) advanced US$2 1/2 to US$84 5/16.
Canadian stocks rose, led by gold producers on expectations that higher bullion prices will boost their profits as central banks stop selling the metal.
The Toronto Stock Exchange 300 composite index rose 15.54 points, or 0.2%, to 7543.40, recovering from an 25.3-point intraday loss.
Barrick Gold Corp. (abx/tse) rose 65› to $30.85, Placer Dome Inc. (pdg/tse) gained 50› to $18.75 and TVX Gold Inc. (tvx/tse) climbed 39› to $4.75, as bullion rose US$2.40 to US$301.90 an ounce on the Comex division of the New York Mercantile Exchange. The rise was on expectations that the new European central bank will hold more gold in its reserves than previously thought.
Base metal producers fell on concern that slowing Asian economies will reduce demand for raw materials used in manufacturing. Rio Algom Ltd. (rom/tse) fell 15› to $27.05 and Falconbridge (fl/tse) lost 10› to $20.30.
Other Canadian markets finished mixed. The Montreal Exchange portfolio fell 2.49 points to 3808.87. The Vancouver Stock Exchange rose 4.88 points, or 0.8%, to 635.42.
Major international markets ended mixed.
London: Britain's FT-SE 100 index finished at its second consecutive record closing high, boosted by derivatives-related trading. The FT-SE 100 climbed 35.2 points, or 0.6%, to 6052.8.
Frankfurt: Germany's blue-chip Dax index closed at a record, buoyed by a sturdy US$. But a flat start to trade on Wall Street pulled the index off its peak. The Dax rose 22.45 points, or 0.4%, to 5176.66.
Tokyo: The already beleaguered Japanese stock market tumbled after the Bank of Japan said in its tankan report on business confidence that companies were increasingly gloomy about the outlook for the
economy. The 225-share Nikkei average tumbled 538.76 points, or 3.3%, to 15,702.9.
Hong Kong: Stocks recovered some of their losses but were still sharply lower at the close with sentiment hit by hefty losses on Japanese stocks and a weak yen. The Hang Seng index fell 141.71 points, or 1.3%, to 11,189.71.
Sydney: Australian shares closed firmer but were swept from early Wall Street inspired highs by the steep Tokyo declines. The all ordinaries index closed up 4.1 points, or 0.2%, to 2757.
Markets Appropriately Priced
U.S. Fed chairman no longer fretting over irrational exuberance
Even U.S. Federal Reserve chairman Alan Greenspan is becoming a reluctant believer in the seemingly never ending stock market boom.
As the Dow Jones industrial average toyed with the 9000 mark yesterday, Greenspan said bull runs in equity markets are being fuelled by the expectation of long-term profit growth.
That, in turn, is being fuelled by expectations of a continuing increase in productivity growth as the world's economy evolves into a new high-technology era, he said.
"If we indeed end up in a wholly new type of high-tech international financial environment, one can readily argue productivity gains that are being expected are going to emerge as a consequence," he told a meeting of newspaper editors.
"Therefore, markets are appropriately priced."
For nearly a year, the Fed's chairman has been publicly fretting about the "irrational exuberance" in stock markets as investors continued to drive prices up.
And while he warned again there will always be fluctuations in stock markets, he is now "not totally alien" to the concept of this new era.
The Fed has been looking for a slowdown in productivity, coupled with higher wage demands, that would signal inflation is returning to the U.S. economy. The last time the benchmark Fed rate was raised was in March 1997, when it was increased 0.25 percentage points to 5.5%. Greenspan also said yesterday Europe will emerge as a key new investment and trading area for the U.S., once 11 European countries complete their conversion to the single Euro currency.
Although he warned there may be some initial economic disruptions among some of the countries with weaker economies, the Euro will soon have the same global economic impact as the US$. "I think Europe is going to be a major focus for the U.S. and other [countries]," he said.
The U.S. and EU have already started talks ultimately aimed at creating a transatlantic free trade agreement. Ottawa has also expressed an interest in a similar agreement with the EU, but has made little progress.
Be Your Own Broker, But Beware The Pitfalls
Buy low and sell high, call up and put down, average down before the close if you're trading options on margin and always remember: pigs get fat and hogs get slaughtered.
Got that? If not, don't worry - you're not alone.
While the mutual fund explosion helped introduce Canadians to the world of money management, the pinstriped world of the stock market still remains a mystery to many.
But while the bizarre vernacular of the Street may never go away, discount brokerage firms - many of which now offer their cut-rate, no-frills services via the phone, computer and the Internet - are helping to pry open the doors to Bay Street's imposing oak-panelled boardrooms.
"People are becoming more and more comfortable with doing their own investing, and like the idea of being able to choose from a variety of their own investments," said David Birkbeck of Royal Bank Action Direct, Canada's second largest discount brokerage.
"They like the cost savings, the convenience of the service and a wealth of information is available these days from a variety of sources."
And while it's a lot easier now to pick up a few blue-chips or launch a second career as a closet market speculator than in years past, there's a few things the novice investor needs to know.
For instance: being your own broker is not for the faint of heart or the fair-weather investor, says Lou Schizas, an independent financial adviser and investment manager in Calgary.
"If you're going to do your own independent analysis, there's nothing wrong with that," Schizas says.
"But you'd better get on it and understand what you're buying. You've got to be informed; you're responsible for your own due diligence.
"You can't do money on an hour a week."
One of the major drawbacks to discount trading is the absence of professionally trained, informed people who can help with investments, not to mention tax issues, legal complications, insurance and mortgages, Schizas says.
As well, full-service firms often get the drop on the market when it comes to new public stock offerings.
But the single biggest drawback is the fact that without someone in your corner who spends all their time watching the markets, that job falls to the only other person who cares about your investments: you.
"It's one thing to have greater potential for access (to information) but if you don't have the time to take advantage of that access then you may as well not have it," said Bruce Dickson, senior vice-president at Scotia Discount Brokerage, a division of Scotiabank.
"People who are particularly time-starved are going to want someone in their corner watching out for them, and that's one area where a full-service broker is of particular value."
Nonetheless, discount brokerage services are booming. Scotia added 30 per cent more accounts and more than 20 per cent to its assets under management last year, Dickson added.
Action Direct, which introduced computer and touch-tone services last year, added 75,000 new accounts in 1997.
Canada Trust's CT Market Partners, a higher-end discount broker that offers more investment services for slightly higher commission fees, doubled its client base last year and saw assets under management swell by 75 per cent, said Jon Purther, vice-president of marketing at CT Securities.
CT Market Partners offers perks like price improvement and guaranteed market order fills, which helps a discount trader overcome some of the lesser-known perils of playing the market.
For instance, since the stock market is basically a giant swap meet, there's no guarantee an independent investor will get the highest asking price for a sell order or the lowest for a buy, Purther said.
Guaranteed market order fills, meanwhile, ensure a buy order is completed in a single transaction at a single price, rather than over an extended period of time, during which the share price can change.
"If there's an opportunity for us to take an order and see if we can get a better price, or ensure we can fill the total order size, that's going to benefit the customer at the end of the day," said Purther.
"There is no requirement in many cases for other firms to be doing that."
Still, there's a price: minimum commissions at CT Market Partners are at the high end of the scale, which ranges from between $22.50 to $35 per trade, plus an extra rate depending on the size of the order.
It's a lot cheaper than the full-service option, but as Schizas says, you get what you pay for.
"An affiliation of good referral networks will put you ahead of the game," he says. "But if you're going to go the discount route - and God bless you - be prepared to do more work.
"If you like to trade your book every five minutes, discount brokerage is the place to be."
SOME FACTS ABOUT GROWING DISCOUNT BROKERAGES:
What are they? Discount brokers trade bonds, stocks, money market instruments and mutual funds at low commissions for investors who don't need the guidance of a full-service broker.
Where are they? Every major Canadian bank includes a discount brokerage, and some Internet-based firms do as well. Shop around.
Advantages: Lower account fees and commissions, plus ease of trading via computer, the Internet, telephone and fax.
Disadvantages: Time-consuming research is necessary to make informed decisions about trading on the stock market. Full-service brokers - paid to manage your assets - also know the markets.
Unsure?: Open a discount account for trades you're comfortable making; hire a full-service firm to handle the tricky stuff. Some discounters also offer value-added investing.
Be computer literate: A vast array of information and advice is available on the Internet and from various banks. Computers also allow investors to conduct their transactions and keep accurate records.
Know thyself: Brokers are bound by the know-your-client rule, which obligates them to inform you if a trade doesn't fit your profile. Know your objectives - growth, income, degree of risk - and stick to it.
Be margin-cautious: A margin account is akin to a credit line, and if stocks go down, they can get costly. Avoid trading on margin until you know what you're doing.
A GLOSSARY OF TERMS YOU'RE LIABLE TO ENCOUNTER ON THE STOCK MARKET:
Averaging Down: Buying more of a security at a lower price than the original investment to reduce the average cost of the unit.
Bid Price and Asking Price: Bid price is the highest quoted price any potential buyer will pay for a stock; asking is the lowest price a potential seller will accept.
Capital Gains (Losses): Profit or loss on the sale of an investment.
Convertible: A bond, debenture or preferred share which may be exchanged, usually for common stock, by the owner.
Puts and Calls: A call is a stock option that gives the holder the right to buy the stock at a given price. A put option is the right to sell. When trading put and call options, 'call up and put down' - buy calls when the market is going up and buy puts when it's going down.
Margin: The amount an investor pays toward a given investment when the broker is lending the balance. Margin accounts allow investors to buy stock with the broker's money. Short sale: A margin trade in which the investor borrows stock from the brokerage, waits for it to decline in value, then buys it from the brokerage at a lower price and pockets the difference. Very risky.
Dividend Re-Investment Plans: Companies with DRIPs allow shareholders to automatically plough their dividends back into new shares of the company. A buy-and-hold growth strategy.
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