MARKET WATCH AT THE KORNER
Stampede To Safety Clobbers North American Markets
Rush Into Bonds Knocks 3.3% Off TSE, Sideswipes C$
Investors continued to dump stocks and run for the relative safety of bonds yesterday, as frustration mounted at the lack of a concerted plan to stabilize the global financial system.
The stampede from stocks into bonds is now so pronounced some analysts are starting to see bonds as overbought and stocks as downright cheap.
Weekend meetings in Washington of committees of the International Monetary Fund, World Bank and Group of Seven nations failed to come up with an agreement either to bolster Brazil's fragile finances or jointly chop interest rates in the world's major economies.
Making matters worse, there were signs the Japanese government is further away from consensus on a plan to clean up its own festering financial crisis.
"There's complete frustration out there," said Gordon Reid, chief investment officer at University Avenue Funds.
That frustration led to sharp selloffs of stocks in Asia, which spread to Europe, then set the stage for steep stumbles for stock indexes in North and South America.
The C$ was also caught up in the volatility, losing US0.48¢ as the market looks for interest rates to come down, removing some support for the currency. The C$ was also hit by a newspaper report in Quebec that Premier Lucien Bouchard was leaning toward calling an election for Nov. 30.
True to its recent pattern of wild swings, the Dow Jones industrial average changed direction in afternoon trading to lose just 58.45 points, or 0.84%, on the day. Earlier, the losses stood at more than 200 points.
In Toronto, traders were less nimble and the Toronto Stock Exchange 300 composite index didn't manage much of a rebound. It closed down 180.98 points, or 3.3%. The last time the TSE 300 traded this low was in September 1996.
Technology stocks were especially hard hit, with investors souring on the profit outlook for the quarters and year ahead. The Nasdaq composite index was off more than 6% midday and closed the day off 4.9%.
Meanwhile, the bond market in the U.S. and Canada racked up huge gains. Both are now factoring in a huge economic slowdown or even a global recession.
At the end of trading yesterday, the yield on the 30-year U.S. government bond was 4.71%, down from 6.4% a year ago when the Asian financial crisis was beginning to be felt in the rest of the world.
Holders of the bonds have enjoyed a return of about 24% since the beginning of the year, compared with the 1.9% return on Standard & Poor's 500 composite index over the same period.
In Canada, it's largely the same story, although investors have had a slightly bumpier ride because of the slide in the C$.
The bond market is sitting on price gains that have sent yields well below the current overnight lending rates of central banks in Canada and the U.S. In Canada, the market has already priced in future interest rate cuts of more than a full percentage point.
Gerald Vincent, an economist with fund managers Davis-Rea Ltd. Investment Counsel in Toronto, said the bond market is so far ahead of itself a correction is due.
Also, the low yield of bonds is starting to make stocks seem more attractive, even against a backdrop of tumbling profits.
"I think we've factored in a global recession and I don't think that's going to happen." Stocks are in the middle of correcting from excessive valuations, now it's the bond market's turn to give off "a whiff of mania," he said.
"There appears to be considerably more risks priced into the bond market than in stocks. The probabilities favor better returns for stocks over bonds in the next six months."
Vincent said talks among financial and political leaders, which continue until tomorrow in Washington, should result in some kind of action that will improve market sentiment for stocks.
"I think there'll be some strong rhetoric, if not concerted action."
Influential market strategist Abby Joseph Cohen of Goldman Sachs & Co. also had an optimistic spin on stocks yesterday.
She called the S&P 500 "moderately undervalued" because it factors in a U.S. recession next year, a development she dismissed as unlikely. "We're not immune from the rest of the world, but we do have a great, large domestic economy, which we think is basically stable."
However, even though the bond market has got ahead of itself, it may still have some running room in it, cautioned Reid.
"The fear factor is a very strong one and the bond market represents a real safe haven at this point."
He said growing signs of complete pessimism in the market are actually a good sign for contrarians, who may be able to get in before it snaps back. But there is probably more weakness ahead before the bulls make a comeback.
Economy Sound, Bank Of Canada Says
Despite the battering Canadian stock markets are taking, Bank of Canada governor Gordon Thiessen insisted yesterday the country's economy is sound.
"These are nervous and uncertain times and the markets are volatile," said Thiessen, who was in Washington with Finance Minister Paul Martin for the International Monetary Fund meetings.
He said the Canadian economy is being hurt because of low commodity prices.
"But domestic demand continues to expand and I think that is very important," he added, hinting more interest rate cuts may be on the way. "It is our job, over time, to ensure sustainable non-inflationary growth."
Thiessen insisted the industrialized countries of Europe and North America have no plan to co-ordinate interest rate cuts.
"Every central bank in each country needs to do the right thing by their respective countries. If we all do that, the global economy will be a reasonable place."
Thiessen and Martin are pushing for reforms to international finance regulation as well as the overhaul of the 50-year-old IMF and World Bank.
"The time for talk is over," said Martin. "The time for action has certainly come."
The finance minister said there is unanimous support for updating outdated financial laws governing the movement of capital around the world.
"Nobody questions the need," he said. "The only issues are how we go about it."
Among the suggestions are increased transparency of the IMF, an agency that is used to doing almost all its business behind closed doors, and an end to what Martin called "off-the-shelf" solutions to global problems.
The IMF was set up after the Second World War to be a lender of last resort to emerging countries.
Its sister agency, the World Bank, offers loans to developing countries to help them build their economies.
Stock Markets
CANADA
Bay Street Tumbles To Lowest Close In Two Years
Toronto stocks ended sharply lower yesterday as investors sought safety in bonds as growing concerns about the global economy rattled markets worldwide.
"There was tremendous disappointment" over the failure of the Group of Seven ministers to agree on coordinated action to boost the global economy, and in particular to address Japan's continuing financial woes, noted Conor Bill, director of private client trading at Scotia Capital Markets.
The Toronto Stock Exchange 300 composite index fell 180.98 points, or 3.3%, to 5336.15, the lowest close in more than two years. Declines swamped advances 789 to 199. Trading volume was 89.9 million shares, down from Friday's 115.9 million, and trading value fell to $1.55 billion from $2.1 billion.
"Unfortunately, I have difficulty seeing what's going to turn the markets around," said Conor Bill, director of retail trading at ScotiaMcLeod Inc.
There was a big selloff in the gold stocks. Gold stocks weigh more heavily on the TSE benchmark and was partly responsible for the sharper drop. All 14 of the TSE's stock groups ended lower, with the 5.2% drop in the gold group among the steepest. The bullion price declined US$3.60 an ounce to US$296.90 on fears the International Monetary Fund might sell gold to provide distressed economies with funding, said Alastair McIntyre, a director at ScotiaMocatta, a unit of Scotia Capital Markets.
In the gold group, Barrick Gold Corp. (ABX/TSE) fell $2.30 to $32.15 and Placer Dome Inc. (PDG/TSE) dropped 80¢ to $23.20. In addition, broker ABN Ambro cut its rating on both issues.
The communications and media group posted the sharpest decline, giving up 5.3%. Blue-chip Thomson Corp. (TOC/TSE), a newspaper and electronic publisher, tumbled $3.45 to a new 52-week low of $29.05, eclipsing the previous level of $31. Reasons for the selloff were not immediately apparent.
The base metals group also had a particularly rough day, dropping 4%. Inco Ltd. (N/TSE) fell $1 to $14.80 and Alcan Aluminium Ltd. (AL/TSE) ended down $1.10 at $33.90.
Toronto's industrial products group fell 3.5%. In the sector Northern Telecom Ltd. (NTL/TSE) closed down $1.70 at $46.30 and competitor Newbridge Networks Corp. (NNC/TSE) dropped 90¢ to $25.
The banking sector saw widespread selling, undercut by continued sluggishness in capital markets, which is expected to hurt bank earnings. The group fell 2.7%.
The prospect of weakening demand for other commodities contributed to a 2.6% drop in the oil and gas sector and a 2.1% drop in the forest products group.
The oil and gas composite index fell 130.22 points to 5033.81. Among the sub-components, the integrated oils fell 1.6% or 123.25 to 7257.74, oil & gas producers 2.8% or 131.66 to 4498.64 and the oil and gas service group fell 3.5% or 50.95 to 1382.09.
Canadian Natural Resources, Genesis Exploration, Amber Energy, Northrock Resources, Petro-Canada, Talisman Energy, Poco Petroleum and Gulf Canada Resources were among the top 50 most active traded issues on the TSE.
Marathon Oil Canada gained $1.65 to $56.00, Imperial Oil $0.75 to $24.15, Shell Canada A $0.60 to $24.60 and Newstar Energy $0.20 to $1.10.
Percentage gainers included Newstar Energy, Pendaires Petroleum, Pursuit Resources, New Cache Petroleum, Alpine Oil Services, Magin Energy, Peak Energy Services, Imperial Oil and Marathon Oil Canada.
Suncor Energy fell $2.05 to $47.05, Dreco Energy Services $1.50 to $17.00, Canadian Natural Resources $1.30 to $22.30 and PanCanadian Petroleum $1.25 to $18.75.
Percentage losers included Mentor Exploration, PeBen Oilfield, Lundin Oil & Gas, Summit Resources, TUSK Energy and Stellarton Energy.
On the Alberta Stock Exchange, the combined value index fell 16.44 to 1736.37 on trading of 6.5 million shares valued at $3.0 million. Of the total shares traded, 74 advanced, 153 declined with another 93 remained unchanged.
Colt Energy, Anvil Resources, Oilexco, HEGCO Canada, Storm Energy and ICE Drilling were among the top 25 most active traded issues.
Fairline Energy gained $0.25 to $0.50, Canop Worldwide $0.10 to $0.60, Solid Resources $0.10 to $6.00, Wenzel Downhold $0.09 to $1.15, Encounter Energy $0.05 to $0.95, Global Link International $0.05 to $0.30 and Storm Energy $0.05 to $0.30.
Percentage gainers included Fairline Energy, Slade Energy, Canop Worldwide, Global Link International, Storm Energy, Invaded Exploration and Wenzel Downhole.
Net losers included Tier One Energy, down $0.20 to $0.50, AltaQuest Energy $0.20 to $0.50, Doreal Energy $0.15 to $1.10, Grace Resources $0.15 to $0.10, Jettstar Resources $0.15 to $0.10, Hawk Oil A $0.14 to $0.70, Basinview Energy $0.11 to $0.06, Belfast Petroleum $0.10 to $2.00 and Edge Energy $0.10 to $3.15.
Percentage losers included Grace Resources, Jettstar Resources, EMR Microwave, Del Mar Energy, Tier One Energy, Firsthand Energy and Hawk Oil A.
In other Canadian markets, the Montreal Exchange market portfolio index fell 105.16 points, or 3.7%, to 2719.24 and the Vancouver Stock Exchange composite lost 7.15 points, or 1.8%, to 396.22.
NEW YORK
Techs Lead Steep Market Decline
Technology stocks plunged Monday, dragging the tech-laden Nasdaq Composite Index down nearly 5%. But blue-chip shares staged a powerful late-session recovery, helping the Dow Jones Industrial Average recover from a deficit of more than 230 points.
The volatility spurred a strong "flight-to-quality" rally in U.S. Treasurys, but depressed the dollar.
The Dow Jones industrials finished the day off just 58.45, or 0.75%, to 7,726.24. Earlier Monday, the industrials dropped 233.01 points at worst, bringing the average within 81 points of a 20% drop from its July 17 record close -- in Wall Street terms, a bear market.
The Standard & Poor's 500-stock index fell 14.04 to 988.56 and the New York Stock Exchange Composite Index lost 5.72 to 492.44. Volume stood at 805.1 million shares on the Big Board. Declining issues beat gainers, 2,384 to 792.
Michael Lyons, a senior trader at Morgan Stanley Dean Witter, attributed the recovery purely to technical trading. Waves of buy programs were responsible for the market's abrupt turnaround, he said, cautioning against reading too much into the reversal.
"It would have been significant if we closed on the plus side," Mr. Lyons said, but since the market ended lower "it doesn't bode well for tomorrow." He added that the sectors that suffered the steepest declines Monday -- the technology and financial groups -- didn't join in the recovery rally. "That's another bad sign," he said.
The worst of the selling was seen in the tech sector. The Nasdaq Composite Index was hammered as jittery investors urgently shifted capital out of widely held technology stocks and into less volatile defensive shares. The composite plunged 78.29, or 4.85%, to 1,536.69. The Russell 2000 small-stock index, also packed with tech shares, slid 12.91, or 3.7%, to 336.80.
Technology stocks were pounded by worries about the sector's prospects in the fourth quarter. Cisco Systems (CSCO) led the sell-off, sliding 7 7/16, or 13.3%, 48 5/16 after an article in the Washington Post stated that the Federal Trade Commission is investigating whether the company proposed illegally dividing up the emerging networking market with two of its competitors.
In a prepared statement, Cisco said it "has been asked by the FTC for information about separate discussions it had with Nortel and Lucent about partnership opportunities," but said it considered the inquiry "a preliminary and routine matter."
The company also came under pressure after its stock was downgraded by Cowen & Co. to "buy" from "strong buy." The technology sector, and the communications-technology market in particular, has been under pressure in recent weeks because of concerns about the worsening global economic turmoil. Concerns are growing that the once-booming market for communications equipment is slowing, especially in the most promising overseas markets, Asia and Latin America.
A. Marshall Acuff, market strategist at Salomon Smith Barney, added that the growing consensus on Wall Street that the U.S. economy will not emerge unscathed from the international market turmoil is fueling the selling. "It's looking more like the U.S. economy's going to slow in the next year, maybe even slide into a recession, and that's particularly not good for techs," he said.
Fears about the spreading international crisis were aggravated after a weekend meeting in Washington of ministers of the Group of Seven industrialized nations adjourned without news of a hoped-for coordinated interest-rate cut or other joint policy action. Instead, G-7 finance ministers simply agreed that the global financial situation had deepened.
The uncertainty sent investors fleeing to the perceived safety of U.S. government securities. The bellwether 30-year Treasury bond surged 2 1/4 points, or $22.50 per $1,000 face amount. Its yield, which moves in the opposite direction of its prices, dropped to 4.71% -- the lowest level for the long bond since 1967.
In New York, the dollar traded at 1.6347 marks and 134.50 yen, down from 1.6460 marks and 135.03 yen late Friday.
World-wide, stocks fell in dollar terms. The Dow Jones World Stock Index was down 2.15 to 160.38 as of 5 p.m. EDT.
Technology stocks
Technology stocks were battered by continued weakness in the broader market and a slew of analysts' downgrades. Heavyweights Microsoft (MSFT), Dell Computer (DELL), America Online (AOL) and Cisco Systems (CSCO) all falling sharply. Microsoft was down 2 1/8 to 102, Dell fell 5 11/16 to 57 and AOL tumbled 8 7/16 to 98 3/4, all on Nasdaq.
Hewlett-Packard (HWP), one of the two tech components in the Dow Jones Industrial Average, dropped 1 3/8 to 48 3/8 on Nasdaq. Goldman, Sachs & Co. cut its rating on the stock to "market perform" from "market outperform."
Shares of enterprise-resource-planning software companies were pounded. PeopleSoft (PSFT) fell 2 5/16 to 22 on Nasdaq. Donaldson Lufkin & Jenrette cut its rating on the stock to "market perform" from "buy." Also, BT Alex. Brown cut its rating on the stock to "market perform" from "strong buy."
Aspen Technology (AZPN) plunged 8 5/8, or 58%, to 6 3/16 on Nasdaq. The software company stunned investors Monday by disclosing it will report a substantial loss for the just-ended quarter on lower than expected revenue. The dismal outlook elaborated on the company's warning Friday and represented the second straight quarter that Aspen's results have fallen far short of analysts' estimates.
Viasoft (VIAS) dropped 1 7/16 to 4 9/16 on Nasdaq. The developer of software for correcting the Year 2000 problem said it expects to report a surprise loss for the first quarter and announced a cost-saving plan that includes a 10% work force reduction.
Lycos (LCOS) gained 1 3/8 to 33 1/8 on Nasdaq. A unit of Fleet Financial Group (LFLT) has agreed to pay the Web navigation guide as much as $22.5 million as part of a credit-card deal.
Active issues
Travelers Group (TRV) declined 4 1/8 to 34 7/16 after CIBC Oppenheimer cut its rating on the company's shares to "hold" from "strong buy."
Financial issues were hit hard Monday after Merrill Lynch cut its ratings on three securities firms and lowered its 1999 earnings estimates for many names in the group. Merrill cut both its ratings and its estimates on J. P. Morgan (JPM), Donaldson Lufkin Jenrette Securities (DLJ) and Lehman Brothers (LEH); Bankers Trust (BT), Morgan Stanley Dean Witter (MWD) and PaineWebber (PWJ) saw their earnings estimates reduced.
Merrill Lynch analyst Judah Kraushaar said the new earnings estimates and ratings were adjusted to account for lowerinvestment-banking and trading revenues into next year.
J.P. Morgan slid 3 5/8 to 80, while Donaldson Lufkin lost 2 9/16 to 22 15/16 and Lehman Brothers fell 2 3/8 to 26 5/8. Bankers Trust shed 2 1/2 to 54 15/16, Morgan Stanley Dean Witter moved down 3 1/16 to 40 13/16 and PaineWebber lost 2 7/16 to 27 1/8.
Shares of telecommunications giant AT & T (T) lost 1 1/16 to 57 5/16 after the company said it agreed to acquire Vanguard Cellular Systems (VCELA), a cellular-telephone systems operator, in a deal valued at $1.45 billion, including the assumption of debt. Shares of Vanguard Cellular, based in Greensboro, N.C., jumped 1 7/16 to 21 5/16 on Nasdaq..
Small-capitalization stocks
Urologix (ULGX) slid 1 5/8, or 27.1%, to 4 3/8. The Minneapolis surgical-device company said its president and chief executive, Jack Meyer, plans to resign. The company also said its fiscal-first-quarter sales won't meet analysts' projections. In addition, the company said it will cut 26 jobs as a cost-reduction measure.
Westell Technologies (WSTL), an Aurora, Ill., telecommunications products company, fell 7/8, or 17.5%, to 4 1/8 after saying it will report a fiscal-second-quarter loss that will be wider than a year earlier, and larger than analysts had been predicting.
Netspeak (NSPK), a Boca Raton, Fla., maker of networking products, was down 13/16, or 11%, to 6 9/16 after saying its third-quarter loss will be deeper than analysts had been expecting, and more than three times its year-earlier loss.
Avid Technology (AVID) tumbled 9 5/16, or 40.5%, to a 52-week low of 13 11/16 after the Tewksbury, Mass., maker of digital video editing that will be significantly shy of analysts' expectations.
Pacificamerica Money Center (PAMM) plummeted 2 11/16, or 37.4%, to 4 1/2. The Woodlands Hills, Calif., finance concern agreed to certain changes in the terms of its agreement to be acquired by Fremont General, citing conditions in the overall securities market, and weakness in the secondary market for sub-prime loans.
Pacificamerica shareholders will now get an initial payment of $6 a share in cash, although that amount could be reduced, depending on the sale price of certain securities, and as much as $4 at the closing, subject to how much is received for the sale of some securities. The original deal was for Pacificamerica shareholders to get $10 a share, 75% of which was to be in cash, the rest in Fremont stock.
International Markets
Shares lost ground across the Asian-Pacific region. Hong Kong's Hang Seng tumbled 4.1% with financial shares leading the decline amid persistent fears of hedge-fund related losses. Shares in Tokyo fell 2.1%, while stocks in the Philippines slipped 2.4%, depressing stocks across the region.
European stocks declined after finance ministers and central bankers from the world's leading industrialized countries met Saturday but failed to take decisive action to ease worries about the slumping global economy. In Britain, the Financial Times Stock Exchange 100-share index fell 2.1%, while Germany's DAX index lost 1.8%.
Meanwhile, shares across the Americas region also fell amid dashed hopes that the Group of Seven industrialized nations would adopt measures to help the world's ailing economies. Mexico's IPC index lost 2.9%, Canada's Toronto Stock Exchange 300-share index fell 3.3%, Brazil's Sao Paulo Bovespa lost 4.5%, and Argentina's Merval index slipped 2.2%.
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