Weekly Wrap-Up December 30, 1996 - January 3, 1997

Closing Numbers

Monday found those souls lucky enough to be on the trading desks lethargic with a turkey hang-over. The Canadian bond market saw mild improvement on overseas buying in London with some light follow through by domestic accounts. Existing home sales for November were up 1.8% in the US, causing little reaction. The US bond market finished the day virtually unchanged. Little, to no, volume characterized trading. Skeleton staffs are still on the trading desks.

The TSE out performed the DJIA today on thin, low volume holiday trading. The Santa Claus rally in the US equity markets fizzled somewhat as some profit taking was done. Big cap stocks are still the flavour of choice. Will the small cap January effect occur this year, or are the big caps to vogue.

For those who do not know, the January effect is a technical trading phenomenon. The observed return of small cap stocks, in the first two weeks of January is, on average, approximately 5% better than those of large caps. This behavior has occurred in 58 of the last 71 years. This is by no means a recommendation for trading strategy by The Financial Pipeline, merely an interesting aside.

Tuesday saw the bond markets get beat up on both sides of the border. US new home sales were up 14.2% in November. This caught the market by surprise. Inflationary number, surprised skeleton staff, early close, thin markets, all add up to a poor showing for bonds.

The stock markets followed bonds, but it was worse. The DJIA had one of its worst closes in the last six months, loosing 1.5% of its value. The TSE was also down, mainly due to gold stocks. Overall, the year was strong for equities with the DJIA up 26%, and the TSE up 25.6%. Let's hope we have as profitable investment year in 1997.

Wednesday the markets were closed for New Years.

Thursday dawns a little to early for some, as the hangover hasn't quite worn off. The bond markets continued to get beat upon. The National Association of Purchasing Managers released their diffusion index, indicating manufacturing growth for the 11th consecutive month. The index measures purchasing managers operational requirements, with any measure greater than 50 indicating expansion in the economy. The release was expected to show a decline, but rather moved higher. The reaction was severe. The trading was thin. The bond markets fell and couldn't get up.

The stock markets rallied early, but could not shrug off the effects of the NAPM number on the bond markets. Closing weaker on the day in sympathy. Low volumes characterized the trading session.

Friday saw the bond markets on both sides of the border take a rest. Traders indicated that the thinly staffed desks were looking forward to a full compliment of people at work on Monday. The markets chopped around in thin, holiday dampened trading to close virtually unchanged.

Low inventory levels in some of the commodity markets, namely lumber and copper, sent the forestry and mining companies to the fore of a broad based market rally. The DJIA had a stellar day, up 101.60pts. The TSE could not keep pace, even with the commodity lead rally. Gold was the culprit for the Canadian markets under performance. Managing to hang onto a 15pt gain was hard work in the face of a $4.60 decline in the price of gold. Rumours that European central banks were selling gold in an effort to prepare their currencies for the coming European integration sent bullion on a one way move down. With gold a generally accepted hedge against inflation, and little real inflationary concerns in the fundamentals, the price of gold could drop further, to possibly test the $352 area (based on technicals).

On the week the TSE managed to hang onto a thin gain. The DJIA a small decline and gold was hammered loosing 2.4% of its value. Next week should bring better volumes, and trading patterns, as the holiday crew is joined by the rest of the desk.

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