MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 2, 1998 (5)
OTHER MARKETS
Montreal Stocks Closed Higher
Prices closed mainly higher at the Montreal Exchange on Friday. The portfolio index was up 17.14 to close at 3,421.60. Volume was 3 million shares traded, compared to 8 million Wednesday. Value traded was $44,463,939.
The banks index was 2.88 lower at 6,294.25; mines gained 24.16 to 2,218.41; oils lost 24.81 to 2,617.00; forest products rose 14.74 to 2,365.62; industrials climbed 66.10 to 3,334.05 and utilities slipped 3.08 to 3,573.76.
Vancouver Stocks Closed Higher
Prices were up in active trading Friday on the Vancouver Stock Exchange. Volume at 2 p.m. PST was 14.2 million shares. Advances edged declines 223 to 85 while 150 stocks were unchanged. The VSE index stood at 630.20 up 11.72 from Friday's close.
Among the most active companies, Canabrava climbed $.29 to $2.50, Winspear Resources $.13 to $1.23.
New York - Dow's New Year Cheer
U.S. stocks staged a late rally to finish with solid gains in a quiet post-holiday session.
Even though Wall Street cautiously crawled into the New Year under warnings of a slowing economy and dwindling profit margins, it looks like the market can stand up straight and walk tall for a little while. The start of 1998, at least, won't be so bad.
Market players said they expected fresh flows of cash into the stock market from bonus payments, dividend distributions and retirement account contributions to boost the market in the coming weeks.
"My best guess is that in January, the flow of funds starts again and the market starts to climb higher," said Arnie Owen, managing director of capital markets at Cruttenden Roth.
This "January Effect" can't stave off the bearbarians at the gate waiting to end the market's bull run. It's just that, for now, traders have money to move even if the market is due for a downturn.
This influx of funds in the shadow of a fragile market leaves investors in a peculiar situation. Never before in the 101-year history of the Dow Jones Industrial Average has the index posted three straight years with gains greater than 20%.
Now that Wall Street has sprinted past that milestone, it mustovercome so many barriers, including the lingering stench from the failures in Asia, that it appears increasingly unlikely the run can continue.
"We're in a period of seasonal support with new cash flows from IRAs, 401(k)s and pensions. But I think the market has a bumpy road ahead," said Marshall Acuff, equities strategist at Salomon Smith Barney. "I would not expect the market to sustain the upward gains of 1997."
Next week, there are no major earnings announcements slated. The only economic reports are Thursday's Producer Price Index, which measures inflation on a wholesale level, and Friday's employment reports. In the absence of any other major market moving factors, the influx of new cash should be enough to extend the glow of 1997 right into the shadows of 1998.
Friday's Market Activity
Stocks staged a late rally to finish with solid gains in a quiet post holiday session that saw investors wrestle with economic data that painted a mixed picture for stocks.
The data, which showed U.S. manufacturing activity in December increased at a slower-than-expected pace, buoyed sentiment in the inflation-wary bond market and sent interest rates to their lowest levels in more than four years.
But equity investors took a mixed view of the data, which suggested a tempering of U.S. economic growth.
The Dow Jones Industrial Average ($INDUA) finished at a session-high 7,965.04, up 56.79 points, while the Nasdaq (COMP) rose 11.18 to 1,581.53. The S&P 500 gained 4.57 to 975.00.
In the broader market, advancing issues outpaced losers by a margin of 8 to 7 on New York Stock Exchange volume of a very light 370 million shares.
"There were a lot of crosscurrents in the market today," said Hugh Johnson, chief investment officer at First Albany. "The good news that inflation and interest rates are headed lower was offset by worries about the strength of the economy and earnings."
The National Association of Purchasing Managers' monthly U.S. manufacturing survey was slightly lower than expected but had little impact on stocks, despite prompting a rally in bond prices.
The NAPM said on Friday its December index of manufacturing activity fell to 52.5 from November's 54.4. The consensus forecast of economists polled by Reuters had called for a 54.0 reading. With the index still comfortably above 50, the reading still points to a healthy manufacturing sector, they said.
"A little weaker than expected, but still above 50," said Richard Berner, chief economist at Mellon Bank. "Overall, this report probably represents the first sign conclusively that what's happening in Asia is starting to dampen the U.S. manufacturing sector."
Growth in exports slowed, with that component of the index at 50.6 in December, versus 54.2 previously. Meanwhile the import reading rose to 57.3 from 52.4 in November.
The NAPM said purchasers remained optimistic regarding their markets, but concerns were expressed about the economy, weakening new orders, the strong dollar and Asian demand.
The benchmark U.S. Treasury bond was up 30 points and the yield, which moves inversely to the price, was at 5.85%, down from 5.92% late Wednesday.
Technology Stocks
Telecommunications issues stood at the middle of a flurry of trading activity. AT&T (T) dropped 2 1/2 to 58 13/16 after a Dallas judge sided with SBC Communications (SBC) and struck down a federal law restricting "Baby Bell" regional telephone companies' ability to offer long-distance service.
SBC traded 1 15/16 higher at 75 3/16. Other regional Baby Bells affected by the ruling include Bell South (BLS), up 7/16 to 56 3/4; Ameritech (AIT), up 1 9/16 to 82 1/16; U S West (USW), up 1 to 46 1/8; and Bell Atlantic (BEL), up 1/16 to 91 1/16.
WorldCom (WCOM) was the most actively traded issue, dropping 5/16 to 29 15/16, while MCI (MCIC) dropped 1/8 to 42 11/16.
Sybase (SYBS) fell over 25% after the software company said it expected fourth-quarter results below analysts' forecasts. The stock dropped 3 3/8 to 9 15/16, a 12-month low. The company said it expected its fourth-quarter earnings per share to be between a loss of seven cents and a profit of two cents.
A First Call consensus estimate had put earnings per share at 12 cents. Sybase also said it forecast fourth-quarter revenues to be from $245 million to $250 million.
Other database software companies were higher. Informix (IFMX), one of the weakest stocks in 1997, gained 7/8 to 5 5/58 while Oracle (ORCL), whose stock was also battered last year, gained 11/16 to 23.
PC makers were strong. In anticipation of next week's Mac World trade show, Apple Computer (AAPL) jumped 24%, up 3 1/8 to 16 1/4. Compaq (CPQ) also gained, up 3 1/16 to 59 9/16, while Dell (DELL) gained 1 3/4 to 85 3/4.
Networking stocks also showed across-the-board strength. Cisco Systems (CSCO) rose 2 5/16 to 58 1/16 while 3Com (COMS) gained 1 1/16 to 36.
Leading Internet stocks were weaker. Yahoo! (YHOO) dropped 3 to 66 1/4, AOL (AOL) lost 7/8 to 89 5/8, Lycos (LCOS) fell 1 7/16 to 39 15/16 and Amazon.com (AMZN) dipped 3/4 to 59 1/2.
Microsoft (MSFT) continued to rebound from recent weakness brought on by its battle with the Justice Department. The software giant is reportedly expected to unveil a $1 billion investment in Tele-Communications Inc. (TCOMA) at next week's Consumer Electronics Show in Las Vegas. Microsoft stock gained 1 7/8 to 131 1/8.
In options trading, the AT&T (T) January 25 calls (.LTAE) were among the most actively traded issues. Sybase (SYBS) puts were among the biggest gainers.
Cognex (CGNX) January 30 calls (.QCGAF) were also big gainers. Cognex stock was down 1 5/16 to 25 15/16.
The tech Dow components were positive. IBM (IBM) gained 1 to 105 5/8 while Hewlett-Packard (HWP) jumped 2 3/16 to 64 9/16.
Intel (INTC) led semiconductor and equipment makers higher. The stock gained 2 3/8 to 72 5/8. Texas Instruments (TXN) was up 2 3/4 to 47 3/4 while Cyrix (CYRX) gained 1 5/16 to 27 3/4. Rambus (RMBS) was up 4 1/4 to 50.
Brock International (BROC) gained 1 to 4 1/2. The informations systems company said it would earn a profit in the fourth quarter before a special charge to pay for the acquisition of Internet company Netgain.
Active Issues
Little news and light activity left the "most actives" a little lazy.
Traders not taking an early weekend or swapping telecommunications issues helped bump up 1997's weakest Dow component. Eastman Kodak (EK) jumped 3 1/4 to 63 13/16. In 1997, the stock fell over 20%, far behind its Dow cohorts.
Money managers said that with the start of the new quarter, mutual funds and other institutions were no longer selling the stock. "The tax-loss selling is over," said Ed Bousa, manager of the George Putnam and Putnam Equity Income funds. "They just crushed the stock at the end."
Money managers said institutions were attracted to Kodak as one of the underperforming Dow Industrial stocks during 1997. "A lot of institutions are buying it as a Dog of the Dow," said the Wall Streeter.
Another weak 1997 Dow performer, International Paper (IP), showed a bit of strength. The stock gained 2 1/16 to 45 3/16. Leading the Dow on the downside were AT&T (T) and Goodyear (GT), the latter down 1 5/16 to 62 5/16.
Word that Microsoft (MSFT) is readying another billion-dollar investment in the cable industry had little effect on cable stocks. TCI Communications (TCOMA) gained 3/8 to 28 5/16 while Time Warner (TWX) dropped 1 1/16 to 60 15/16.
Pressure on Time Warner shares was generated by negative analyst comments about the entertainment giant's fourth-quarter performance, according to money managers. An analyst at Deutsche Morgan Grenfell has reportedly reduced his earnings and cash flow estimates for the stock.
Natural-gas stocks took a hit. Merrill Lynch downgraded a cluster of the issues after certain performance targets were met or exceeded. Among the downgraded were Connecticut Energy (CNE), Yankee Energy System (YES), Eastern Enterprises (EFU), and MDU Resources (MDU).
In options trading, Warner-Lambert (WLA) January 155 puts (.WLAMK) were huge gainers. Activity in the issue pushed its value to over $30. Warner-Lambert stock was up 1 11/16 to 125 7/8. Analysts have said they expect strong sales gains from the company's anti-cholesterol drug Lipitor and Type II diabetes drug Rezulin.
Another active option was the Toys "R" Us (TOY) February 35 put (.TOYNG). An article published last month in Microsoft Investor by Off the Record Research reported that year-to-year sales at the toy retailer were up 5%-10%. Toys "R" Us stock dropped 1/2 to 30 15/16.
U.S. Economy Hints At Slowdown
Growth expected to fall to 2.5% from a projected 3.7%
Peter Morton - The Financial Post
The U.S. economy is starting to slow even before the effects of the Asian crisis really begin to be felt across the country.
A key leading economic indicator released Friday shows U.S. manufacturing business activity fell sharply in December, mirroring a general decline that started in July.
The National Association of Purchasing Management said its index fell to 52.5% in December from 54.4% in November. NAPM surveys industry executives who buy basic materials for manufacturing. A drop below 50% indicates falling manufacturing activity.
NAPM is seen as among the most telling indicators of where U.S. growth is headed and is watched closely by U.S. Federal Reserve chairman Alan Greenspan.
"This is a replay of the commodity-led downturn in growth in 1986 and the post-Mexican peso fiasco slowdown in 1995," said senior economist David Rosenberg with Nesbitt Burns Inc. in Toronto.
Most North American economists predict the U.S. economy will slow this year, but have been revising forecasts in the wake of the Asian currency crisis. Growth is now expected to fall to 2.5% from the expected 3.7% for 1997.
The bright side of a U.S. slowdown is the prospect Greenspan may move to lower interest rates this year rather than hike them out of concern about looming inflation. The main contributor to the fear of inflation is the tight U.S. labor market in which unemployment stands at about 5%, compared with 9% in Canada.
But senior economist David Greenlaw at Morgan Stanley & Co. Inc. in New York said the drop in the NAPM index may not be all that revealing. "There is a little bit of evidence of a slowdown, but it is certainly not all that convincing."
Greenlaw said Morgan Stanley has not yet revised its forecast of 3.25% growth for the U.S. economy this year and won't do so until there are clearer indications of what impact the Asian fallout will have. "That will take a few months to sort out."
The U.S. slowdown is not expected to have as large an impact on the Canadian economy as it might have two years ago, said Rosenberg. "Canada will slow down, but from higher growth rates than the U.S." Canada and the U.S. are at different stages in the economic cycle, with domestic growth in Canada contributing a larger share than it had in the past. About 80% of Canada's exports head into the U.S. market, making it vulnerable, especially when the Canadian economy itself is weak.
But Rosenberg said strong job growth in 1997 -- more than 300,000 jobs were created in the first 11 months of the year -- means Canada should have strong growth throughout 1998 as well. Economic growth in Canada should be 3.5% this year, compared with nearly 4% in 1997.
OVERSEAS MARKETS
Hong Kong stocks closed lower in largely cautious, mixed trade with institutions making minor portfolio adjustments in advance of the weekend. Brokers forecast another uneventful period next week.
The Hang Seng Index closed down 42.19 points, or 0.39%, at 10,680.57, well off the low for the day of 10,594.06. Turnover was low.
"We are in need of an injection of new funds," said Randy Yip, dealer at AMMB Securities, adding that with the changes in the investment environment in Asia, the market was unlikely to launch into its traditional pre-Chinese New Year's rally next week. "We are likely to move sideways for at least the next month to three months," Yip said.
Trade, though concentrated in blue chips, was spread across the broad market. A total of 664 issues were traded with 155 issues advancing, 211 declining and 298 unchanged.
"We have just averted a global meltdown," said Dominic Moynahan, associate director at Indosuez W.I.Carr Securities. "Given that, the market will try to hold the 10,000 level then rally up to about 11,800, that's the top of the range."
Japanese financial markets were closed for the New Year's holiday. The markets will reopen Monday.
London shares breezed into 1998 with strong gains on the back of a rising dollar and strengthening continental bourses, though trading levels were as low as expected on the half-day session.
Building on its 25% rise in 1987, its second-best performance since creation in 1984, the FTSE 100 index of blue-chip stocks closed 58.0 points, or 1.1%, higher at 5,193.5, its highest close since mid-December.
Dealers said activity had been sparse after the New Year break but said limited buying interest in insurers and selected other stocks had been enough to squeeze the market higher.
Germany's DAX index was trading around the 4,300 point level in midsession trade after an early boost from a strong dollar, with share price gains exaggerated by very thin volume.
"There will certainly be a positive mood, with South Korea looking better and people looking for a rally in January as new liquidity comes in," one dealer said. "But it's so illiquid today that a lot of the gains are being magnified."
By midday the Xetra DAX index, which reflects all-day electronic trade, was 63.97 points or 1.51% higher at 4,288.27. In bourse trade, the DAX was 37.24 points up at 4,286.93. Trade was particularly thin on the Frankfurt bourse, where the largest share of daily business usually takes place, dealers said.
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