Bonds mixed amid debt-ceiling worry; dollar shows strength
Stock prices edged lower Tuesday after an early rally from the Quebec referendum outcome and several upbeat economic reports faded and traders sold shares to close out the month.
Late in the day, Treasury Secretary Robert Rubin warned of market disruptions if the federal debt ceiling is not raised soon.
The Dow Jones industrial average, which pushed above 4800 at one point in the day, ended down 1.09, at 4755.48, on New York Stock Exchange volume of 376 million shares. Broader market indexes also closed lower as there were slightly more losing shares than winners on the NYSE and Nasdaq markets.
For the month, the Dow industrials were off 34 points; the Standard & Poor’s 500 index lost 3 points; and the Nasdaq composite index gave back 7.5 points. None of this represents a legendary October scare, but neither did we see the significant price pullback that some analysts believe is necessary to lay the groundwork for a year-end rally.
With the Quebec separatist referendum over, the next pressure point in North American stock, bond and currency markets is the brinkmanship in Washington over raising the federal debt ceiling. If House Speaker Newt Gingrich suddenly starts speaking French, watch out.
Rubin warned Gingrich late Tuesday that if Congress fails to boost the $4.9 trillion federal debt ceiling by Wednesday morning, scheduling for the quarterly debt refunding in mid-November through auctions of 3- and 10-year notes will be jeopardized. If action isn’t taken by Monday, the auctions must be postponed, he said.
Gingrich may have more fans on Wall Street than President Clinton, but he has fewer than Rubin.
Bonds closed mixed amid conflicting economic reports and worry over the debt-ceiling showdown. The dollar rose.
Among stocks in the news, several Nasdaq biotech stocks had a good day. One of them, Cephalon, disclosed positive results in clinical trials of a drug it is developing with Chiron to treat Lou Gehrig’s disease. Cephalon rose 25 cents, to $30; Chiron added $3, to $91.
Among Nasdaq losers was American Oncology, a physician-practice management firm that plunged $13.62, to $35, after a disappointing earnings report Monday.
“Neverendum”: This word, coined in Quebec in the wake of Monday’s referendum on separating the province from Canada, sums up the unfortunate aftermath of the close vote.
By failing to defeat the separatist initiative by a resounding “no” vote, Quebec is left with none of the benefits of independence–whatever they may have been–and many of the headaches.
As expected, the Bank of Canada and the nation’s private banks cut interest rates immediately after the separatist proposal was defeated. Canadian stocks and bonds and the Canadian dollar rallied, and the general outlook for Canada’s economy seemed good. But all was not well.
Reuters reported that Barton Biggs, the investment strategist for Morgan Stanley in New York, cut his recommended weighting of Canadian stocks in his firm’s model global portfolio to zero from 3 percent. He said the lack of a decisive “no” vote means investors should sell into any post-referendum rally.
“Anybody who’s investing in Canada is going to steer away from Quebec for the time being, which is unfortunate, because the province is already suffering from a low level of investment” said David Hale, chief economist for Kemper Financial in Chicago.
The fervor for secession may prompt the separatists to seek to dissolve the provincial parliament and hold new elections–a step that must be taken before another separatist referendum can be held. Late Tuesday, Quebec Premiere Jacques Parizeau, a leader of the separatist movement, said he would resign at the end of parliament’s session in the fall. None of this will inspire outsiders to invest in Quebec.
Hale said Quebec has major problems with its economy and its finances, adding, “You can’t keep having referendums all the time.”
Donald Coxe, a Canadian native who heads the Harris Investment Management unit of Harris Bankcorp in Chicago, agreed. “In effect, it’s a hung jury. . . . This generation of leaders in Quebec is determined to have one more shot.”
Coxe believes the next recession in Canada, which may come as soon as two years from now, will create enough discontent in Quebec for the separatist vote to win.
Follow-up: Chalk up one for the small investor. Arthur Levitt, chairman of the Securities and Exchange Commission, said Tuesday that his agency has shelved a proposal to permit companies to eliminate footnotes from their annual reports to shareholders.
Public comments received this summer regarding the proposal were generally unfavorable, Levitt told an audience in Columbus, Ohio, according to Bloomberg Business News. Companies would be required to supply footnoted information only to shareholders who requested it.
“Investors felt uncomfortable about having to ask for the information, instead of receiving it automatically,” Levitt said.
Local news: Spyglass, the Naperville-based provider of software to browse the Internet’s World Wide Web, jumped $6.37, to $49.75, in regular Nasdaq trading and kept climbing in after-hours trading. The company is scheduled to report fiscal fourth-quarter earnings Wednesday, and late Tuesday, President Donald Colbeth said he was comfortable with analyst estimates of 6 to 7 cents a share.
– Ameritech, the Midwest’s regional telephone company, slipped 25 cents, to $54, despite a bullish recommendation by noted market observer Elaine Garzarelli. She also likes BellSouth, which rose 25 cents, to $76.50.
