MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 20, 1998 (1)
MARKET WATCH
Banks Drag Down TSE
Bay Street retreated as the Toronto Stock Exchange financial services subindex plummeted for a second straight day. Wall Street lost ground but took heart from high-flying drug shares
The shares of Canada's major banks suffered their steepest two-day decline since Jan. 12.
The Toronto Stock Exchange 300 composite index fell 10.39 points to 7754.36.
Canadian Imperial Bank of Commerce, Toronto Dominion Bank and Bank of Nova Scotia cut 35 points from the benchmark.
The TSE financial services subindex fell 239.4 points, or 2.3%, to 10,195.2, matching Friday's 2.3% decline.
CIBC shares (cm/tse) fell $3.20 to $51.80, Bank of Nova Scotia (bns/tse) lost $1.90 to $39.60, TD Bank (td/tse) dropped $2 to $67, Royal Bank of Canada (ry/tse) slipped 65› to $87.95 and Bank of Montreal (bmo/tse) fell $1.15 to $81.85.
The TSE 300 composite index fell 10.39 to 7,754.36. Volume was 98 million shares, compared with 110 million on Friday.
Falling bank shares offset gains from Northern Telecom Ltd. and BCE Inc., after unexpectedly strong earnings from AT&T Corp. in the U.S.
Ballard Power Systems Inc. and Sears Canada Inc. also advanced strongly after they released better than expected earnings reports.
Among mines, Euro-Nevada climbed $1.00 to $26.25.
Nortel (ntl/tse) climbed $2.50 to a record $95.40 while parent company BCE (bce/tse) rose $1.85 to a record $60.85.
Ballard (bld/tse) climbed $7.50 to $161.50 after the maker of fuel cell engines said its 1997 loss narrowed to $1.37 a share.
Sears (scc/tse) gained 15› to $26.40, after earlier rising as high as $27, after it said first-quarter earnings increased to 7› a share from a loss of 3› a share for the same period a year earlier. The first quarter is traditionally the firm's weakest and bodes well for the earnings of other retailers.
Other Canadian markets fell. The Montreal Exchange portfolio lost 15.15 points, or 0.4%, to 3897.44. The Vancouver Stock Exchange slid 4.19 points, or 0.7%, to 633.2.
U.S. stocks also lost ground, led by American Express Co. The decline was tempered by a rally in drug and computer related shares.
The Dow Jones industrial average lost 25.66 points, or 0.3%, to 9141.84.
About 601 million shares changed hands on the Big Board, down from 666.8 million shares traded on Friday.
The Standard & Poor's 500 index rose 0.93 of a point to 1123.65.
The Nasdaq composite index gained 20.54 points, or 1.1%, to a record 1887.14, propelled by strong performances by Microsoft Corp. and Cisco Systems Inc.
American Express (axp/nyse) fell US$2 3/4 to US$103 3/4. It rose US$4 1/8 Friday on speculation that it is a takeover target
Pfizer Inc. (pfe/nyse) soared US$8 1/4 to US$113 3/8, after the Wall Street Journal reported that doctors are writing tens of thousands of prescriptions a day for its impotence pill, Viagra, putting it in a league with bestsellers like Prozac.
Pfizer, up 52% this year, trades at 62 times the past year's profits, or more than double the price-earnings multiple of the S&P 500.
Eli Lilly & Co. (LLy/nyse) rose US$3 13/16 to US$72 3/16 on new evidence that its Evista drug may prevent breast cancer.
Microsoft (msft/nasdaq) gained US$2 1/2 to a record US$94 5/8, boosted by optimism that it will beat analysts' earnings forecasts for its fiscal third quarter ended in March.
Cisco (csco/nasdaq) rose US$1 13/16 to a record US$72 1/4 after it agreed to work with Ciena Corp. (cien/nasdaq), up US$2 7/8 to US$48 1/2, to develop new optical networks.
Other Internet stocks gained, too, making up some of Friday's losses. Yahoo Inc. (yhoo/nasdaq) rallied US$4 1/4 to US$125 3/4 after falling US$6 7/8 on Friday.
Major overseas markets closed mixed. In London, the Financial Times Index of 100 industrials closed Monday at 5,933.1, up 10.9. Asian stock markets closed mixed Monday, with share prices tumbling in Taiwan but rebounding in Hong Kong.
London: British shares rebounded from last week's losses. The FT-SE 100 Index climbed 31.9 points, or 0.5%, to 5954.1.
Frankfurt: German shares gained, with speculation of bank megamergers. The Dax index rose 173.25 points, or 3.3%, to 5442.
Sydney: Profit-taking and concerns over a weak currency tempered gains. The all ordinaries index rose five points, or 0.2%, to 2872.5.
Wellington: New Zealand share prices closed higher, with brokers saying the market was boosted by Friday's rise in the U.S. market. The NZSE-40 Capital Index rose 8.93 points, or 0.3 percent, to 2,326.79.
On the Tokyo Stock Exchange, prices closed little changed. The benchmark Nikkei Stock Average of 225 selected issues slipped 6.70 points, or 0.04 percent, closing at 15,697.10. On Friday, the average had fallen 179.97 points, or 1.13 percent. Trading was sparse as investors held back to await the expected stimulus plan to boost the Japanese economy. Prime Minister Ryutaro Hashimoto has promised 16 trillion yen (dlrs 121 billion) worth of tax cuts and public spending to kick-start growth.
Hong Kong: A new Hang Seng 100 index, representing the top 100 companies by market capitalization on the Hong Kong Stock Exchange, made its debut. Analysts said the 100 index provides a better representation of the stock market than the 33-company Hang Seng index. However, the new index has no futures contracts linked to it. The Hang Seng 100 ended 8.94 points, or 0.8%, higher at 1,056.64. The broader Hang Seng index rose 150.31 points, or 1.4%, to 11,151.63.
The Taiwan market's key Weighted Stock Price Index fell 217.38 points to 8,508.56. Taiwan's main share index shed 2.5 percent as investors dumped technology stocks because of worries over the prospects for high tech companies, dealers said. They said investors were concerned that reports of rising inventories at major U.S. technology companies will mean less business for Taiwan companies later this year, dealers said.
Seoul: Share prices closed lower on worries over continued labor unrest in the country. The Korea Composite Stock Price Index fell 5.95 points, or 1.3 percent, to 435.73.
Kuala Lumpur: Malaysian share prices closed higher on local institutional buying. The Composite Index, which tracks share prices of 100 key stocks, rose 5.51 points, or 0.8 percent, to 634.29.
Jakarta: Share prices closed mixed. The key Composite Index edged up 0.254 point to 508.156.
Bangkok: Thai share prices closed lower, pushed down by the decline in the shares of Bangkok Bank, the country's largest commercial bank. The Stock Exchange of Thailand index fell 4.62 points, or 1.0 percent,
to 434.37.
Singapore: Share prices closed slightly lower as worries over the economic outlook for Malaysia and Indonesia continued to loom large, dealers said. The Straits Times Industrials Index fell 4.76 points, or 0.3 percent, to 1,510.39.
Manula: Share prices closed lower for the fourth consecutive session as a lack of positive economic news prompted investors to either stay on the sidelines or sell off select stocks for quick profits. The Philippine Stock Exchange Index of 30 selected issues fell 19.5 points, or 0.9 percent, to 2,156.60.
Alternatives To Timing The Market
St Johns Evening Telegram
The secret to making money in financial markets is straightforward enough. Just buy when prices are low, and sell when they're high.
Trouble is, it's not easy to do. Attempting to purchase securities when prices are lowest and selling when they're highest sounds simple enough, but there's a lot of knowledge and research that goes into property timing the markets. Even professional money managers often have difficulty achieving this ideal. That's because nobody can really predict when stocks have hit their lows or highs until the fact.
Trying to move in and out of market at its valleys and peaks is known in investment circles as "market timing." And while it can make the few who are successful wealthy (which often has as much to do with luck, not skill), for most of us it has more pitfalls than potential.
Changing your investment focus at the wrong time can be a costly move. Studies have shown that smaller investors tend to jump in and out of investments at the wrong time. When an asset class - say, stocks - is on a downturn, they tend to wait until the worst is over before making an exit, only to miss out on rebounding prices later. Then, when they move back into these securities, they're forced to pay inflated prices.
This tendency applies both to direct investors and those who invest through mutual funds. By switching in and out of funds in an attempt to time the market, the same problems arise. In fact, trying to time the market runs contrary to one of the best reasons for investing in mutual funds - to benefit from the expertise of professional money managers. It's better to leave the investment decisions to the pros.
So what's the alternative to market timing? Try a buy and hold strategy - invest for the long-term and ignore short-term market fluctuations.
The best way to do this is through asset allocation - spreading your investment across different types of assets. The three major asset classes are: cash (such as money in the bank and short-term investments), fixed-income assets (such as Guaranteed Investment Certificates) and equity-based assets (such as stocks or shares of businesses and corporations). Asset allocation has many advantages - as you gain exposure to different investment types (saving, income and growth), you reduce your potential investment risk.
Asset allocation can also be used to adjust investments to suit your changing needs. For instance, a younger investor may take a more aggressive, growth-oriented approach, while in later years, the same investor may choose more conservative investments. (Asset allocation will be discussed in detail next week.)
If you invest in individual securities, there may be times when there are good reasons to buy or sell individual securities - for example, when you're happy with the profit you've made on a stock or if changing company fundamentals are endangering its share price. But that's much different from trying to time the market by selling all your equity holdings because of market conditions.
Speak to your financial advisor about how a steady, long-term approach can help you avoid the pitfalls of market timing.
Bull Run Erodes Wall Street Tenets Experts Weigh In On Change In `Conventional Wisdom'
CNBC
Trying to predict what the stock market will do is a lot like trying to catch a butterfly barehanded. To help investors, market analysts and technicians often look back in history to how the market has reacted to certain events and economic relationships in the past. These benchmarks have turned into "conventional wisdom" about how the market will act.
"UNFORTUNATELY THEY do not work right now.
Ha, ha, ha," said Bernadette Murphy, managing director, Kimelman & Baird, LLC.
Murphy and the other experts all agree that "conventional wisdom" has taken a beating, particularly dividend yields, the "book" on price earnings ratios and notions about the typical investor.
"People traditionally said that if the dividend yield went below 3 percent you should sell the market. The dividend yield went below 3 percent by 1991 or 1992 so people following that have been out of the market for a long time," said Richard Bernstein, chief quantitative strategist, Merrill Lynch.
The second myth is that investors were supposed to sell the market if the price earnings ratio goes above 20 - the market went above 20 three years ago.
Third, when "regular" folks start investing, the market is supposed to be topped out. Wrong. Actually all that money is simply fueling the market.
"As long as the liquidity is there. Who's to say that 40 times earnings is a lot, it could be 50 or 60 times," said Frank Getz, analyst, Shields & Company.
Murphy, Bernstein and Getz all agree that low inflation and interest rates are the forces behind the erosion of conventional wisdom. If either factor goes up, "CW" will be back in play. But what about now? What new signs are they looking for to see if the bull tires out?
Murphy says volume changes are a factor.
"Almost every day, 1,200-1,300 stocks are up. As long as that's happening we can assume there still is money out there," said Getz.
And more money is ultimately the best "CW" of them all.
THE WORLD THIS MORNING
Euro-Stocks Drop Sharply, Unsettled by Dow
LONDON, April 21 - European stocks reversed direction on Tuesday and dropped sharply, rattled by an overnight setback on Wall Street and a weakening dollar.
London, Paris and Frankfurt made losses of nearly one percent in early trade after weathering recent choppy trade to close with healthy gains on Monday.
In currencies, the dollar fell against the yen and was under heavy pressure against the mark on expectations of a rise in German interest rates.
Frankfurt stocks, which touched a trading high on Monday, tumbled 1.22 percent in opening dealings with the weaker dollar seen as hurting the exporting sector.
Traders said the market was struggling in the wake of Wall Street 25-point loss on Monday to 9,141.84 and the dollar's fall, the first time it has dipped below 1.79 marks since February 5.
Volkswagen shares were off 3.6 percent, 40 marks, at 1,055. On Monday it confirmed that its supervisory board would meet this weekend to consider raising its bid for Rolls-Royce Motor Cars.
London fell 0.7 percent in early trade, and dealers said the market looked vulnerable to profit-taking after the blue-chip FTSE 100 put on 16 percent in the last three months.
"There is no great selling pressure but the market looks a bit tired," said the head of equity trading at one leading investment bank. "We have had a huge run and might just be due a bit of consolidation."
Dealers noted that concern over the possibility of rising interest rates was circulating in other centres as well as the UK.
"There are jitters about rates not just here but globally," said an equity salesman at one brokerage. "It's been said before that the second quarter was going to be more testing."
The markets was unmoved by Tuesday's British inflation data which was in line with expectations but was jittery over Wednesday's UK jobs report seen as potentially significant in determining prospects for interest rates.
Supermarket stocks were a negative influence, with Tesco down 2.2 percent as a 10 percent rise in annual pre-tax profits failed to excite and profit-taking set in after recent strength.
In Paris, stocks were down 1.5 percent, dragged lower by the weaker dollar and falling bond prices.
"The principal problem today is the dollar," one trader said. Traders said dollar stocks, notably oil stocks, could be hit hardest by profit-taking.
In currencies, the dollar was looking less robust and lost nearly a pfennig in early trade.
Economists said the U.S. currency was under mounting pressure from speculation that the Bundesbank was likely to raise short-term German interest rates long before the Federal Reserve contemplates interest rate rises in the U.S.
"The Fed is on hold for a long-time and you are going to have to set that against short-term expectations for a rise in German rates from the Bundesbank," said David Brown, chief economist at Bear Stearns.
Dealers said increasing speculation of a rise in German rates was likely to find support in Tuesday's stronger-than-expected German M3 growth.
"The market is getting geared up for a possible rate hike, plus it is long dollars," said a dealer at a major U.S. bank.
The Bundesbank reported German March M3 rose an annualised 5.1 percentcompared with expectations for a 3.1 percent rise.
In bullion markets, palladium fixed at a fresh 18-year high amid tightening lease rates caused by Russian political uncertainties and its failure to export any metal this year.
The precious metal fixed at $334.00 an ounce, up on Monday afternoon's $326.50 and approaching the all-time high on Reuters charts of $335.00 in March 1980.
MARKETS AT 0909 GMT CURRENCIES (figure in brackets previous London close)
Dollar/mark 1.7926 marks (1.8024) Dollar/yen 131.54 yen (132.2300)
STOCK MARKETS LONDON
FTSE 100: 5906.8 points, down 47.3 or 0.79 percent
FRANKFURT - Xetra DAX: 5352.45 points, down 55.48, or 1.03 percent
PARIS - CAC-40: 3827.98 points, down 57.71, or 1.49 percent
PRECIOUS METALS (figures in brackets previous London PM fix)
Gold - $307.25 per ounce ($308.45) Silver - $6.195 ($6.27)
Brent crude oil futures $14.46, up $0.07
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