On the floor of the Toronto Stock Exchange (TSE) the hectic activity left even veteran traders reeling. In the offices of Canadian brokerage houses the din of ringing phones and a flood of investors walking in off the street signalled that an extraordinary buying spree was underway. Indeed, by last week a month-long rise on major North American stock markets turned into an explosion. First, the Dow Jones Industrial Average on the New York Stock Exchange dazzled Wall Street when it closed at a historic high of 1292.62 points. Then, the following day the TSE’s composite index of 300 stocks rose 23.96 points to close at an unprecedented 2604.02. Declared Thomas Milligan, a senior TSE floor trader for Midland Doherty Ltd.: “Orders were coming in so fast I did not have a chance to look at the clock.” Added Glen Moore, a vicepresident of McLeod Young Weir Ltd. in Toronto: “Things have been so wild I have been trying to cool people off.” Analysts say that last week’s stock performance is the start of the longawaited “second leg” of the bull market that began in August, 1982, then paused last year. Early in January, buoyancy returned to most major markets around the world, pushing exchanges in Britain, France and West Germany to record highs. Last week, the trend swept North American markets from Vancouver to Montreal and New York. Explanations for the investor euphoria ranged from the serious to the superstitious. Many analysts point to the so-called “Super Bowl indicator” which holds that a bull market will follow when a team from the original U.S. National Football League beats its American League opponent in the January classic—as did the San Francisco 49ers this year. Market lore also promises stock gains in years evenly divisible by the number five.
But other experts offer more tangible explanations. Jay Smith, a vice-president of Merrill Lynch Canada Inc., noted that often January stock prices tend to rise above December levels. At yearend, he explained, investors sell a flood of stocks at a loss to help reduce their income tax. Other brokers and analysts claim that the most important factors in last week’s upturn were portents of a strengthening economy. Two weeks ago the Conference Board of Canada revealed that in 1984 the inflation rate had dropped to an average 4.4 per cent—a 13-year low—and it projected an average rate of only 3.3 per cent in 1985. That
prediction gained credibility when the Organization of Petroleum Exporting Countries agreed to cut oil prices because of sluggish demand for crude.
At the same time, the prime lending rates of chartered banks have declined steadily to 11 per cent from 13.5 per cent last July. As a result, most economists no longer fear that Canada and the United States might fall back into recession in 1985. Carl Beigie, an economist with Toronto-based Dominion Securities Pitfield Ltd., predicted that Canada’s economy will grow by around three per cent in 1985. Concluded Robert Sibthorpe, research manager with Midland Doherty Ltd. of Toronto: “We are not slipping back into a recession, and the removal of this fear has given investors courage.”
Institutional investors from pension to investment funds were the first to plunge into the current stock shopping spree. The TSE reported 900 block trades (each at least 2,000 shares and worth at least $50,000) last Wednesday—the second highest block volume ever. Buying activity centred on blue-chip stocks such as Canadian Pacific Ltd., which rose $2.13 to $57.13, and Algoma Steel Corp. Ltd., which went up $1.63 to $24.50.
Experts also credit last week’s upsurge to the return of many small investors to the market after an absence of nearly a year. Explained Dominion’s Beigie: “There are a lot of people who do not want to be left out in this upturn.” In 1984 individuals accounted for only about 40 per cent of trading activity. After last week, Sibthorpe estimates they could once again represent 60 per cent of the market as they did during a bull market in the 1960s. Many were sophisticated players who had been watching the market for months and had at least $5,000 to $10,000 to spend. Like the pension fund and institutional investors, individuals avoided speculative junior stocks and purchased highquality shares, according to Harold Clifford, an assistant vice-president at Merrill Lynch. Said one 30-year-old investor who in January doubled a $140,000 investment: “I am excited because the market is hitting new highs.”
At week’s end, profit-taking and a wave of nervousness over a possible interest-rate rise caused the Dow to drop by 9.05 points and the TSE to fall by 19.6 points. But most analysts retained their belief in the stamina of the bull market. And optimists predicted that a yearlong rally may have begun. Said Sibthorpe: “There is a strong possibility the market will top 3,000 sometime this year.” Added Merrill Lynch vice-president Smith: “The saying is: ‘So goes January, so goes the year.’ ”
With Sandy Fife in Toronto and Lenny Glynn in New York.
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