Just when you thought you could sneak away for a free Stampede breakfast unscathed, the stock market boot stomps you, grabs you by the lapels and shakes you sober.
It flatly refuses to take a summer vacation, this strange creature known as the stock market.
The historians and market sages had been telling us for weeks that nothing was going to happen ’til September, give or take a few surprises on the earnings front.
Hah! Good one!
We should have known better. There’s no free breakfast in the stock market.
The reality is that the Nasdaq, moodier than a rank Stampede bull, never rests.
Not even in the dog days of summer.
While we were weighing in on the flapjacks, Merrill Lynch was rocking the Nasdaq with a downgrade of semiconductor stocks from ‘overweight’ to ‘underweight.’ Investors would have been most grateful if Merrill hadn’t forgotten to do this dirty deed BEFORE many of those equities went on a crash diet with a correction earlier in the year.
To add insult to injury, at about the same time as Merrill was testing the frazzled nerves of investors, Goldman Sachs was turning bearish on global equity markets, advising investors to cut exposure to equities to guard against an anticipated “sharp deceleration” in earnings growth for equities.
Can’t you just picture those money managers frantically paddling their canoes back to shore on orders from their bosses to go ‘underweight’ on their holidays?
Normally, such downgrades could be shrugged off at a time when volume is light and the chances of a massive selloff are remote.
However, in this case, the technical signs for the Nasdaq dictated that one pay attention to the signals, particularly with the market already skittish over a raft of profit warnings in the tech space.
The Nasdaq composite index was flirting with a key technical support level in the 1,960 range, as were many of its marquee companies such as Intel (INTC), the bellwether of the chip sector whose second-quarter results disappointed the street, Yahoo (YHOO) and eBay (EBAY).
According to the technical analysts, Yahoo was in danger of breaking through support in the $30 US range, in which case it could drift down to the low $20s.
Stay in touch, pardner. With the heat being turned up on Nasdaq, this could still turn out to be one rip-snortin’ summer for the markets – which could leave you up the creek without a paddle.
* REALITY CHEQUE: If you’ve been mocking those who own boring old money-market funds, sit back down in your cheap seat and take a gander at some numbers.
A recent Bloomberg global survey of 18,000 long-term funds, including multiple classes of individual funds, showed an average return for the first six months of 2004 of 0.6 per cent – 1.7 per cent for stock funds and a loss of 1.6 per cent for bond funds. So, relatively speaking, those conservative money-market funds ain’t faring so badly after all.
Many Canadian fund managers have been singing from the same song sheet this year. The common refrain is that stocks ain’t cheap and investors need to dig deep to find stocks trading at reasonable valuations.
Peter Arender, a portfolio manager with Acker Finley who is the featured stock picker in this week’s Pro’s 3 Stars (Page 32), is cautious on the broad markets and advises investors to pick stocks, not the stock market.
* STREET TALK: “We face the broadest overpricing of all assets yet recorded – global equities, global bonds and, with a few exceptions, global real estate,” writes Jeremy Grantham, chairman of Boston-based Grantham, Mayo, Van Otterloo & Co., in a note to clients. “By far the most important single equity market, U.S. equities, is particularly badly overpriced.”
* CHEERS: To TSX Venture Exchange president Linda Hohol, whose promotional savvy has helped raise the profile of Canada’s junior exchange considerably in the two-plus years since she assumed the reins.
The resource-weighted Venture has been on a roll this year, having nearly matched its venture capital funding from last year in just the first six months of 2004. Last year, investors participated in 2,200 new equity financings on the Venture totalling $2.4 billion.
* JEERS: To Nortel’s brash new American CEO, Bill Owens, who is acting like an American prima donna superstar athlete by referring to himself in the third person in a recent interview on ROB-TV.
Investors have seen quite enough arrogance from Nortel in recent years. This is an accounting-challenged company that needs to get its feet planted back on earth.
SAGE WORDS: “Money is like manure. You have to spread it around or it smells.”
– J. Paul Getty
HOT STOCK: GENERAL MINERALS CORP.
GNM-TSX $1.79
Up 49 cents (+37.7%) on 205,700 shares (for week ending July 16).
With mining stocks lazier than a porch hound in these dog days for the market, you have to dig awfully deep to unearth any real action. General Minerals jumped off our radar screen with a huge spike as speculators
salivated over the Vancouver company’s portfolio of exploration prospects in Arizona, Bolivia and Chile. Now, it’s only down about 50 per cent from its November high of $3.50.
COLD STOCK: WORLD HEART CORP.
WHT-TSX $2.43 Down $2.95 (-54.8%) on 2.03 million shares (for week ending July 16)
This was a real heart-stopper for shareholders of the artificial-heart maker. Stock in the Ottawa company fell out of bed on a gloomy outlook for the second quarter and balance of the year. The company also sent up a red flag to investors by admitting it would be restating its first-quarter financial results. On the news, San Francisco firm ThinkEquity Partners downgraded the stock, which has tanked more than 80 per cent in a four-month span.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
