MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, DECEMBER 5, 1997 (1)
Saturday, December 6, 1997
Stock Markets - Street Shakes Off Blues
Wall Street soared as a wave of traditional yearend buying brushed aside the lowest U.S. jobless rate in almost 25 years. Bay Street surged, powered by the gold and financial services sectors
By THE FINANCIAL POST
The Dow Jones industrial average rose 98.97 points, or 1.2%, to 8149.13. For the week the Dow gained 326 points, or 4.2%. Volume on the New York Stock Exchange was 561.9 million shares, compared with Thursday's volume of 638.8 million shares.
The Standard & Poor's 500 composite index set a new high, climbing 10.69 points, or 1.1%, to 983.79, surpassing the old high of 983.11 set on Oct. 17. On the week the S&P 500 gained 28.39 points or 3%. The Nasdaq composite index jumped 20.48 points, or 1.3%, to 1633.9, for a gain of 33.35 points, or 2.1%, on the week.
The markets reacted after the U.S. government said the unemployment rate fell to 4.6% in November from 4.7% in October. The number of non-farm jobs created jumped by 404,000, twice as many as analysts had expected. Analysts said traders appeared to be buying in anticipation of stocks rallying as they typically do in late December and early January.
"Money managers are jumping the gun," said Ricky Harrington, technical analyst, at Interstate/Johnson Lane.
Investors also appeared to be betting that given the turmoil in Asian economies, the U.S. Federal Reserve is unlikely to raise interest rates.
The market was helped by strong gains in the technology sector after its pummelling earlier in the week. Cisco Systems Inc. (CSCO/NASDAQ) gained US$3 to US$89 3/8, Dell Computer Corp. (DELL/NASDAQ) rose US$2 5/16 to US$93 3/4, International Business Machines Corp. (IBM/NYSE) rose US$3 1/16 to US$112 7/16 and Hewlett-Packard Co. (HWP/NYSE) added US$4 5/8 to US$67 5/8.
The Toronto Stock Exchange 300 composite index climbed 62.06 points, or 0.9%, to 6724.37, for a gain of 211.59 points, or 3.2%, on the week. Volume on the TSE was 117.1 million shares, compared with Thursday's 114.6 million shares.
"We didn't do too badly -- but we still envy the action in the Dow," said Fred Ketchen, senior vice-president and director of equity trading at ScotiaMcLeod Inc.
"I think the bump in the gold sector certainly helped." The heavily weighted gold group led the Toronto market's advance, surging 3.9% as gold prices firmed. The price of gold on the Comex division of the New York Mercantile Exchange rose US$1.90 to US$288.40 an ounce.
Banks also drove the index as the sector finished the week on a high note, up 1.2% on the day. The six largest banks closed out their 1997 reporting season Thursday, chalking up a fourth straight year of record profits totalling almost $7.5 billion.
Toronto stocks dipped early in the session but changed course quickly as investors brushed aside the strong U.S. employment figures.
In individual stocks, shares in Canadian 88 Energy Corp. (EEE/TSE) slipped 5› to $4.45 in heavy volume as investors expressed impatience over delays in the company's plans to pump natural gas from its southwestern Alberta deep wells.
Major gold rivals Barrick Gold Corp. and Placer Dome Inc. were boosted by the higher in gold price. Barrick (ABX/TSE) rose 70› to $22.90 while Placer (PDG/TSE) rose 60› to $15.90.
The other major Canadian markets closed higher. The Montreal Exchange market portfolio rose 37.99 points, or 1.1%, to 3411.9, for a gain of 117.2 points, or 3.6%, on the week. The Vancouver Stock Exchange composite index rose 3.98 points, or 0.7%, to 617.58, but slipped 25.96 points, or 4%, on the week.
The major overseas markets closed higher.
London: British shares catapulted to a six-week closing high after Wall Street muscled its way higher. The FT-SE 100 index rose 60.6 points, or 1.2%, to 5142.9, for a gain of 311.1 points, or 6.4%, from last week.
Frankfurt: German shares recaptured ground to finish firmer. The Dax index climbed 30.28 points, or 0.7%, to 4170.08, gaining 220.94 points, or 5.6%, on the week.
Tokyo: Japanese stocks rebounded in the afternoon to break a three session losing streak, helped by short-covering of financial issues as well as bargain hunting. The Nikkei average rose 117.69 points, or 0.7%, to 16,424.48, down 211.78 points, or 1.3%, from last Friday.
Hong Kong: Stocks closed moderately higher, lifted in part by better sentiment surrounding China plays. The Hang Seng index climbed 52.66 points, or 0.5%, to 11,527.6, up 1000.68 points, or 9.5%, on the week.
Sydney: A thin Australian stock market ended with light gains after mining stocks found friends at the day's lows and banks continued to attract interest. The all ordinaries index rose 4.7 points, or 0.2%, to 2557.2, rising 92.1 points, or 3.7%, on the week.
MARKETS FINISH BANNER WEEK WITH SHARP RISE
New York and Toronto shake off the Asian flu as investors focus on fundamentals at home and position themselves for 1998.
Tis The Season To Be Jolly - Gary Lamphier Vancouver Sun
Stock markets in Toronto and New York rose sharply Friday to cap a banner week, as investors closed the book on the Asian flu and focused instead on North America's strong economic fundamentals.
Bottom-fishers also moved in to snap up battered resource stocks, as tax-loss selling season nears its peak and investors position themselves for a hoped-for recovery in 1998.
The Toronto Stock Exchange 300 index gained more than 62 points or almost one per cent Friday to close at 6,724.37, bringing its advance on the week to a stellar 211 points or about 3.2 per cent.
All but one of the TSE's 14 industry groups gained ground Friday. Gold stocks (no, that's not a misprint) led on the upside, gaining nearly four per cent in value, although they slipped 3.6 per cent over the past five sessions.
On the week, financial services stocks led on the upside, gaining more than 6.1 per cent. Communications stocks, utilities, and paper and forest products issues all gained more than four per cent.
Even base metals stocks -- down 24.3 per cent so far in 1997 -- were
higher, gaining one per cent.
Gold bugs, who have been squashed flat in recent months, were heartened by slightly firmer prices. Bullion for February delivery rose $2 US to $290.50 per ounce Friday in New York, prompting some traders to speculate that the disastrous plunge in gold prices may have nearly run its course.
Shares of local gold producers such as Placer Dome, Dayton Mining and Prime Resources all rose Friday. "The historical low in the last 15 years is $284.75 and we may get support at that point as buyers re-enter and push the price back up to $300," Alistair McIntyre, a gold trader with ScotiaMcLeod, told Bloomberg News.
There was also good news on the job front. Canadian Press reported that unemployment levels dropped one-tenth of a point to nine per cent last month, reflecting the impact of 33,500 new jobs, based on Statistics Canada data.
Traders also found plenty to cheer about in New York. The Dow Jones Industrial Average gained almost 99 points Friday to close at 8,149.13 as market players interpreted upbeat economic data in the face of low long-term interest rates as bullish indicators for the market's direction in 1998.
The U.S. long bond yield closed Friday at 6.08 per cent, after briefly
dipping below six per cent earlier in the week.
At Friday's close, the Dow is now just 110 points below its August record high of about 8,260. On the year, the Dow is up a sizzling 26.4 per cent, about three times the 9.2 per cent gain racked up by the TSE 300, which has been dragged down by resource issues.
Broader U.S. indices also gained ground Friday, with the technology stock-laden Nasdaq Composite up about 20.5 points at 1,633.90; the Standard & Poor's 500 Index up almost 11 points to a record-high 983.79; and the NYSE Composite Index up nearly five points at 514.31, also a record.
On the week, the Dow rose about 326 points or 4.2 per cent, the S&P 500 was up more than 28 points, and the NYSE Composite jumped 15.21
points.
Friday's advance followed news of robust U.S. job growth and strong factory orders, allaying fears that Asia's economic woes may derail the American economic juggernaut.
The U.S. labor department reported Friday that 404,000 new jobs were created in November, pushing the unemployment rate down to a 24-year low of 4.6 per cent, compared to 4.7 per cent in October.
"Even though the jobs number was extraordinarily strong there is no inflation around and there is also a feeling that the [Federal Reserve Board] is greatly restrained from any tightening," Charles Pradilla, chief investment strategist at Cowen & Co. in New York, told Bloomberg News.
"Good economic news is very good for earnings."
Meanwhile, the U.S. commerce department said orders to U.S. factories rose 0.3 per cent in October, the fifth straight monthly gain, reflecting higher demand for everything from cars to food.
In Vancouver, the Vancouver Stock Exchange's key index closed up 3.98 points Friday at 617.58, although it still lost 24.22 points on the week.
Since the year began, the benchmark index of junior resource stocks has lost more than half its value.
Still, the meltdown among junior mining stocks may be nearing its end, provided bullion prices recover -- even modestly -- and senior resource issues rebound in the weeks ahead.
B.C. STOCK INDEX
It may be a tad premature to pop the champagne corks just yet, but the besieged B.C. Stock Index has finally ended its seven-week-long losing streak. The benchmark of 173 West Coast stocks -- created for The Sun by Bloomberg Financial Markets -- gained 3.32 points or 2.8 per cent this week to close at 120.12. Although the index is still down more than 25 points since Oct. 10, this fall's brutal selloff in resource stocks looks like it may be winding down. B.C. stocks that hit new 52-week highs this week include WIC Western, Bentall, BC Telecom and Westcoast Energy, as well as junior tech stocks such as Silent Witness and ALI Technologies. Junior miningstocks continue to dominate the list of losers. Imperial Metals, Dayton, Eldorado, Aber, Nevsun, Cumberland, Vengold and Royal Oak all hit new 52-week lows, along with lumber producers such as Interfor and Doman Industries.
Saturday, December 6, 1997
Inside the Market
IN SEARCH FOR A FAIRYTALE ENDING
By PATRICK BLOOMFIELD
The fun thing about markets is that the humans who make them always prefer to interpret any new turn of events the way that best fits their current mood.
The much stronger than expected employment numbers released by the U.S. Labor Department Friday were a case in point.
"Scary stuff for stocks," you might have said three or four months back. "The U.S. Federal Reserve has no choice but to crank up interest rates."
Not this time around. Wall Street gave a whoop of joy at the news. The Standard & Poor's 500 composite index made a record high. Investors were still convincing themselves the Goldilocks economy of modest growth and low inflation is alive and well.
Here is how they got there.
First, there were those long-held fears that an overexcited U.S. economy would lead the Fed to increase short-term interest rates again to nip inflationary consequences in the bud.
Then came the Asian collapse. The No. 1 fear in investors' minds swung from indications of potential inflation to just the opposite - deflation.
Then came the consolation of Friday's numbers to all those Goldilocks believers in the prospect of U.S. and Canadian economies continuing to traverse the razor's edge between internal inflation and external deflation.
That happier outcome is indeed possible.
The latest issue of the Montreal-based Bank Credit Analyst examines this "perfect soft landing" scenario, among others. Restrained by trading influences from across the Pacific (and maybe from other parts of the globe), U.S. economic growth slows to, say, 1 1/2% to 2% next year.
Any lingering fears of inflation are defused. Bond yields drop to 5 1/2%. Corporate profit growth decelerates, but in the absence of an all-out recession, investors still look to the long term for consolation - a serious stock price decline (say, of more than 15%) is averted.
My concern while watching Friday's ebullience is that, while this is clearly the kind of outcome every investor would like to see, it seems a remarkably weak excuse for yet higher highs.
Consider the evidence. According to First Call Corp., the assembled ranks of the strategy callers at U.S. brokerage houses are calling for about 7% profit growth from companies in the S&P 500 next year.
That could be in line with the soft landing outlook set out above. At the more optimistic end of the scale, there is the consensus expectation of those analysts who follow individual companies of 14 1/2% profit growth in 1998.
Whichever one is proved closer to the mark, the number-crunchers at Bank Credit Analyst (and others) have been maintaining for some time that long-run earnings growth of 10% annually had already been priced into the U.S. marketplace.
Apart from the fact that continuance of 10% or better profit growth is way above past experience, what good reason is there to price in even higher profit growth? And what if even the strategy callers are proved over optimistic in their 7% call for next year?
It does seem to this humble observer that Friday's jollity deliberately put the best face on what is at best a pretty uncertain outlook.
There is, however, one exception that has undoubtedly been helping maintain the general market tone. As mentioned in an earlier column, about 30% of the stock valuation of the Toronto Stock Exchange 300 composite index is directly interest-sensitive (financials, utilities, pipelines).
If one allows for the general expectation that bond yields will come down further over time, that has to offer some reassurance for stock price valuations in general, and interest rate-sensitive sectors like utilities in particular. The latter have been looking more and more like safe havens in rough seas of uncertainty.
To crib the thoughts of one portfolio manager, is it worth buying economically sensitive Northern Telecom Ltd. at a price-earnings multiple of 33 and a dividend yield of 0.6% when you can buy a 51% stake in it through interest rate-sensitive BCE Inc. at a P/E of 21 and a dividend yield of 3%?
HOT STOCKS
Saturday, December 6, 1997
In Toronto trading yesterday, Fletcher Challenge class A shares (FCC/TSE) rose 75› to close at $20. MacMillan Bloedel's shares (MB/TSE) were off 5› to end at $15.35. Speculation about the future of MacMillan Bloedel Ltd. heated up Friday with continued rumors that cash-rich Fletcher Challenge Canada Ltd. is on the verge of cutting a $1-billion deal for the troubled forestry company's paper operations.
Schneider Corp. shares (SCDa/TSE) closed unchanged Friday at $23. The voting shares (SCD/TSE) rose 25› to $22.75. Maple Leaf Foods Inc. is extending its hostile bid to take over Schneider Corp. by 10 days, but has not increased the offer. Maple Leaf also said Friday it has obtained a legal opinion that Schneider's poison pill is invalid, but the company has no plans to go to court over the issue. Earlier this week, Schneider's board recommended rejection of the Maple Leaf offer of $19 a share and adopted a temporary poison pill to thwart the $129-million bid, which was to have expired at 12:01 a.m. today. The offer is extended to Dec. 16 at the same price. "Our offer continues to represent an opportunity for Schneider shareholders to maximize shareholder value," said Tom Muir, chief financial officer of Maple Leaf Foods. "It represents a 40% premium to the pre-bid share price and is higher than the all-time pre-bid share price high." Douglas Dodds, Schneider president and chief executive, is talking to other possible bidders about the future of the Kitchener, Ont.-based food processing company.
Westmin Resources Ltd. (WMI/TSE), unchanged at $5.70, on volume of 1.8 million shares. More than 40 million shares have traded since Nov. 24, when the market opened to the news that Boliden Ltd. was making a $5.40-a-share takeover bid for mining company. Since that day, when Westmin shares rose $2.07 to $6.05, no competing bid has appeared and the price has edged steadily down. The 40 million total is equal to
almost half of Westmin's stock, after removing the 8.9 million shares held or optioned to Boliden. Market watchers think a lot of the volume is coming from investors who would rather take cash today than risk the price falling, as it will if no bid materializes. Conversely, they believe the buyers are U.S. arbitrageurs willing to gamble that an auction will develop. The collapse in volume on U.S. Thanksgiving Day, Nov. 27 -- at 240,000 shares, the lowest since the bid was made -- supports the idea that U.S. interest is driving the trading.
Donner Minerals Ltd. (DML/VSE), up 38› to $1.23, on volume of 625,300 shares. Northern Abitibi Mining Corp. (NAI/ASE), up 25› to 75›, on volume of 216,400 shares. Trading in stock of both the 50% partners in the South Voisey Bay Property, a Labrador mining play 90 kilometres south of the giant Inco Ltd. find, was halted simultaneously.
Imasco Ltd. (IMS/TSE), down $1.15 to $51, on volume of 1.1 million shares. The Montreal-based holding company was a leading cause of rumors and stock market activity last week as the shares bounced between $49.50 and a 52-week high of $54.25. A conglomerate with holdings in tobacco, drugstores and financial services, speculators
are betting Imasco will follow other conglomerates and reorganize itself, perhaps by spinning off CT Financial Services Inc., parent of Canada Trust. The stock's weekly trading total of 3.2 million shares was double the normal volume.
Domco Inc. (DOC/TSE) shares closed Friday up $1 at $19.50. The 52-week range is $22.50 to $11. Armstrong World Industries Inc., the U.S. flooring giant, has raised its offer for Domco Inc., the Canadian vinyl products maker, pushing its takeover bid into its seventh month. Armstrong raised its cash offer Friday to $26.50 a share from $23,
extending the expiry date to Dec. 31. On a fully diluted basis, the total value is nearly $556 million, up from $488 million in Armstrong's original offer early last June. Domco has 21.1 million shares outstanding. Domco is owned 57% (fully diluted) by newly
formed Tarkett Sommer AG of Germany.
Cott shares (BCB/TSE) closed up 30› on Friday at $14.30. A protracted price war being fought by U.S. soft drink giants is taking its toll on Cott Corp. The Toronto-based private label pop maker yesterday posted third-quarter earnings that were down 58% from the same period last year. For the quarter ended Oct. 25, Cott had net earnings of $3.3
million (5› a share) on sales of $344.1 million. For the same period a year earlier, the company earned $8 million (13›) on sales of $326.8 million.
International Datacasting Corp. common shares (IDA/ME) closed unchanged Friday at 31›. It has a 52-week range of 80› to 21›. International Datacasting Corp.'s president and chief executive has resigned just days before the company is to release new products and results for its third quarter. IDC announced last month it had cut staff and executive pay, converted shares and rid itself of crippling debt to save thecompany. Mullington told shareholders at that time he would present the board of directors with a new business plan to reflect a changedmarket for IDC's satellite broadcasting products. That plan presented a new budget for the balance of the fiscal year "because we realized our sales had fallen and we wanted to refocus," Corporate Secretary Leblanc said.
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