MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING FRIDAY APRIL 24, 1998 (2)
MARKET WATCH, Con't
After The Bell
Peoples Energy (PGL) reported fiscal second-quarter earnings of $1.34 per share, 19 cents shy of expectations.
Carbiner International (CWC) warned that its second-quarter earnings will not meet expectations.
Imperial Holly (IHK) reported a second-quarter loss of 63 cents per share versus a profit of 21 cents a year ago. No estimates were available.
DQE Inc. (DQE) said it earned 58 cents per share in the first quarter, a penny shy of expectations.
New York State Electric & Gas (NGE) beat the Street by 4 cents, reporting first-quarter earnings of $1.15 per share.
Economic Data's Return to Fore Clouds Picture
Unlike its counterparts in Jericho and Berlin, Wall Street's famous wall -- the "Wall of Worry" -- can be torn down and rebuilt in a hurry. Heading into the coming week, reconstruction efforts were being organized.
It may sound counterintuitive, but that's actually good news for investors. When there's too much optimism, frenzied buying emerges. As demonstrated by the Internet stocks in the past week, frenzied buying often leads to panicked selling.
Still, expect some choppy trading ahead if sentiment is a gauge of market direction. On Friday, all major indices closed down, but well off session lows, while battered groups like big Internet stocks showed signs of life. Both trends are an indication that confidence remains high -- perhaps unduly so. Also, the most recent Investors Intelligence sentiment readings showed 54.6% of newsletter writers are bullish, while only 23.1% consider themselves bears, a six-year low. Although the selling on Thursday and Friday has some brows furrowed with worry, many players were fairly sanguine about the reversal.
"Two days do not a market make. It's not that [a market correction is] not possible, but based on two days' action, you can't make that call," said Dan Baker, co-manager of institutional trading at D.A. Davidson. "The market is under a little bit of pressure, but look where it is. We're down 1% [from all-time highs], so what?"
In the week ahead, the earnings torrent recedes a bit. In technology, reports are expected from Western Digital (WDC) on Monday; Amazon.com (AMZN) and DSC Communications (DIGI) on Tuesday; Ericsson (ERICY) on Wednesday; and Electronic Data Systems (EDS) on Friday. Beyond the technology sector, Dow component 3M (MMM), Warner-Lambert (WLA), PepsiCo (PEP), Pharmacia & Upjohn (PNU), and Cooper Cameron (RON) are due to report. Check the earnings calendar for more.
With most S&P 500 companies having already reported earnings, the focus next week shifts somewhat to fundamental issues like the economy.
The bond market faces a heavy news calendar in the week ahead after flirting with 6% this past week amid minimal economic data. The big day is Thursday, when the first quarter Employment Cost Index and advance gross domestic product figures are released, as well as initial unemployment claims for the week ending April 25 and new-home sales for March. Existing home sales figures for March are reported on Monday; Tuesday brings durable goods orders for March and the April consumer confidence data; while the National Association of Purchasing Managers Index and University of Michigan consumer-confidence figures for April are due on Friday.
Traders welcome the data because it will give the market a tighter focus. However, if Ken Mayland, chief economist at KeyCorp, is correct, the economic data in the coming week will do nothing to dispel the sense that U.S. economic activity remains robust.
"The GDP figures on Thursday will show yet another quarter of above trend growth," Mayland said. "In spite of a sizable subtraction from foreign trade, the economy is still doing well. There are positive offsets to the adverse effect from the problems in Asia."
Mayland expects first-quarter GDP to grow 3.25%, a hair lower than the consensus estimate of 3.3%. His prediction of a 0.9% rise for ECI is also a shade beneath expectations for a 1% gain.
"There's no reason to expect growth in compensation to stop until the economy cools, which is not in anyone's immediate prospects," he said.
Given that wage growth is an indicator that Fed Chairman Alan Greenspan has specifically cited as one of his favorites, is the economist among the growing cadre of market participants looking for a preemptive rate hike from the Fed?
Noting that money growth of 7% (as measured by the Fed's M2 money supply measure) in the past year is inconsistent with the sustainability of a 2% inflation rate, "there is a case for doing something preemptively," Mayland said.
However, inflation remains "exceedingly low" and such a move would have a damaging impact on the stock market, so "I think for now, the Fed is not going to do something preemptively," he said.
Joseph Battipaglia, chief investment strategist at Gruntal & Co., is far less accommodating to the idea of the Fed raising rates.
"The Fed has no evidence whatsoever that we're on the cusp of an inflationary environment," Battipaglia said. "They've been saying the same things about wage growth for the last three years and nothing [inflationary] has materialized. There no reason for a rate hike."
Additionally, higher rates would make dollar-denominated assets more attractive to foreign buyers, which "would create more problems for Japan," the equity strategist said. "From a policy point of view, it's nonsensical for the Fed to even consider raising interest rates."
If that view gains a foothold and economic data holds no negative surprises, the long bond may fall further from the 6% level in the coming week. There has been a divergence in stocks and bonds of late, but such a development should at least help the stock market avoid an appreciable downturn.
Major International Markets Closed Broadly Lower.
London: Britain's FT-SE 100 index fell 0.6% - its lowest level in five weeks - after another bout of profit-taking hit financial and drug stocks. The FT-SE 100 lost 34.2 to 5863.9, down 58.3 points, or 1%, since last Friday.
Frankfurt: German stocks lost ground as speculation about a financial megamerger involving insurer Allianz AG was scuppered by the company's chairman. The Dax index fell 107.18 points, or 2%, to 5144.28, down 124.47 points, or 2.4%, on the week.
Tokyo: Japanese shares were boosted by Finance Minister Hikaru Matsunaga's comment earlier Friday that the government's latest economic package would include a pledge to look at making expected one-time tax breaks permanent. Buying by public funds pushed the Nikkei by more than 400 points early in the afternoon, but some selling of blue chip stocks trimmed some of its early gains toward the closing bell, traders said. The Japanese key stock average closed above 16,000 for the first time in seven sessions. The 225-stock Nikkei average closed at 16,011.24, up 249.55 points, or 1.6%, and up 307.44 points, or 2%, since last Friday.
Hong Kong: Share prices in Hong Kong closed generally lower for the second straight day in thin trading. Stocks drifted lower in subdued trade at the end of a disappointing week with little good news to cheer the market. The Hang Seng Index, the Hong Kong market's key indicator of blue chips, fell 39.01 points, or 0.3 percent, closing at 10,879.93. On Thursday, the index had lost 58.53 points. The Hang Seng index closed down 121.39 points, or 1.1%, on the week. Brokers said share prices opened lower in reaction to an overnight slump on Wall Street, but that futures-related buying in the afternoon erased some of the earlier losses. They said trading remained light as many investors continued to stay on the sidelines because of the uncertain economic outlook for the region.
Sydney: Australian stocks skidded lower as an options-inspired short-covering spurt evaporated. The all ordinaries index closed at 2854.9, down 22.9 points, or 0.8%, a fall of 12.6 points, or 0.4%, on the week.
Wellington: New Zealand share prices closed higher. The NZSE-40 Capital Index rose 8.38 points, or 0.3 percent, to 2,322.83.
Kuala Lumpur: Malaysian shares closed mostly higher as market sentiment remained upbeat following the well received merger details between RHB Bank Bhd. and Sime Bank Bhd. The key Composite Index, which track 100 bluechip stocks, closed at 635.11 points, up 6.87 points or 1.09 percent.
Taipei: Share prices closed slightly higher as most investors continued to stay on the sidelines ahead of the release of first quarter earnings at the end of the month. The market's key Weighted Price Index rose 22.15 points, or 0.2 percent, to 8,636.11.
Manila: Philippine shares closed lower lower Friday, buffeted by political uncertainties ahead of next month's general election and a weak local currency. Te Philippine Stock Exchange Index of 30 selected issues fell 10.42 points or 0.5 percent, to 2,153.91.
Sydney: Australian share prices closed lower after a spate of sell orders in the finance and media sectors, dealers said. The All Ordinaries Index fell 22.9 points, or 0.7 percent, to 2,854.9.
Seoul: Share prices closed lower on profit-taking. The Korea Composite Stock Index fell 1.98 points, or 0.4 percent, to 414.56.
Singapore: Share prices closed mixed in cautious trading. The Straits Times Industrials Index slipped 4.58 points, or 0.3 percent, to 1,491.28.
Jakarta: Share prices closed lower, driven by the fall of some blue-chip stocks following poor results from several major listed companies. The Composite Index fell 1.375 points, or 0.3 percent, to 490.481.
Bangkok: Thai shares close lower. The Stock Exchange of Thailand index fell 2.62 points, or 0.6 percent, to 424.79. (ks)
Investor Learning Centre Of Canada
More than 2,600 people attended the first five days of opening week activities launching the Investor Learning Centre of Canada's (ILC) new free Resource Centre in Toronto.
Various free seminars held this week -- covering topics ranging from mutual funds to investing in stocks and managing your investment portfolio -- attracted almost 600 people looking for help to become better investors.
''The public wants unbiased, practical investment information, and the numbers of visitors coming through our doors this week has confirmed that,'' ILC President Dr. Roberta Wilton said Friday. ''The ILC's mission is to help fill that need for information by educating Canadians about investing.''
On Monday, April 27, a free seminar called Talking Mutual Funds with Jonathan Chevreau, author of Smart Funds 1998, is part of the second week of grand opening activities. That starts at noon. The Resource Centre doors open that day at 8 a.m., and every visitor will get a free investor education kit from the ILC.
Free seminars and book signings run April 27 through May 1 at the Resource Centre. There are free prizes and other give-aways.
The Resource Centre, at 121 King Street West, is open Monday through Thursday from 8 a.m. to 7 p.m. and Friday 8 a.m. to 5 p.m.
Resources in the new centre include a Reuters real time stock information terminal; a Canada News Wire terminal providing real-time news releases; computers with CD-ROM products and software that lets users analyze corporate data and mutual funds; interactive investment learning courses; Internet access with bookmarked Web sites; and, course materials.
Canadians outside of Toronto who can't visit the Resource Centre are getting similar information through the ILC's Virtual Resource Centre on the Internet -- www.investorlearning.ca
Both the Resource Centre and the Virtual Resource Centre are free services provided by the not-for-profit ILC, Canada's first charitable organization solely dedicated to helping Canadians learn more about investing.
The ILC is not connected to commercial interests and is funded by revenues from its own low-cost programs and by an endowment from the Canadian Securities Institute, the official educator of the Canadian securities industry.
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