Oil price worries flatten markets

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Tuesday 19 September 2000

Oil price worries flatten markets TSE down 281 points as Nortel sinks $6 James Dalziel The Canadian Press

TORONTO -- Investors' jitters over a possible economic "oil shock" and lower corporate earnings sent North American stock markets sharply lower yesterday.

On the Toronto Stock Exchange, Nortel Networks led a broad-based downturn as the TSE 300 Composite Index plunged 281.61 points, or 2.55 per cent, to 10,781.97.

Nortel -- with a 30 per cent weighting in the TSE 300 -- sank $6 to $101.10 on trading volume of 8.77 million shares after several analysts said the company's shares are unlikely to continue their amazing growth.

On Wall Street, the Dow closed down 118.48 at 10,808.52, following a drop of more than 160 points last Friday amid concerns about oil prices and profits. The Nasdaq dropped 108.71 to 3,726.52 and the Standard & Poor's 500 index fell 21.3 to 1,444.51.

The TSE 300 index is off 5.3 per cent since hitting an all-time high of 11,388 on Sept. 1.

The tech-focused Nasdaq is off nearly 12 per cent since Sept. 1, when it had its most recent high close, 4,234.33. The Dow is off about 4.4 per cent since Sept. 6 and the S&P is off five per cent since Sept. 1.

"We're seeing ongoing worries about oil prices, we're seeing worries about the euro and its impact on corporate earnings through translation exposure," said analyst Mario Angastiniotis of Standard and Poor's MMS in Toronto.

"The higher oil prices are leading some to worry that it may push the U.S. economy into a hard landing and that would have a further impact on earnings."

But the chance of a sharp economic decline is "very remote," Mr. Angastiniotis said. "The U.S. economy is not quite as sensitive to oil prices as it used to be."

Fred Ketchen, chief of equities trading at Scotia Capital, attributed the TSE's broad selloff to profit-taking after some big advances last week, including a record 328-point jump Thursday.

In Toronto, 12 of 14 stock groups fell. The metals and minerals sector and the oil and gas group both rose 0.17 per cent, but Nortel's industrial products sector was the biggest decliner, off 4.64 per cent.

Decliners outnumbered advancers 664 to 421 with 304 unchanged in trading of 131.3 million shares worth $3.5 billion. The TSE 100 fell 18.89 to 672.87.

With world oil prices reaching new 10-year highs, Husky Energy gained 35 cents to $14.90 and Cavell Energy five cents to 83 cents as the TSE's most active oil stocks. London Brent crude futures for November delivery soared to a 10-year high of $34.98 US a barrel before ending the day at $34.45.

High-tech losers, in addition to Nortel, included JDS Uniphase, off $7.85 to $146.45, and Ballard Power Systems, down $10.35 to $155.65.

Among the most active industrials, animation company Nelvana rose $4.85 to $45.30 on news of a takeover by Corus Entertainment. But Corus shares fell $3.75 to $40.25.

In New York, a selloff in blue-chip and technology issues pushed stocks down as profit warnings preoccupied the market.

"I think the markets are concerned about earnings going forward and the effect the slowdown of the economy will have on them," said A.C. Moore of Dunvegan Associates in Santa Barbara, Calif.

"I would say, overall, markets are in a correcting process and ... it has taken the failure of a succession of rallies for investors to recognize this change."

Mr. Moore said investors are also concerned about the weakness of the euro, Europe's chief currency, and the effect that rising oil prices, which hit their highest level in a decade Monday, will have on profits.

The coming U.S. presidential election, which looks to be a tight race, also has some investors nervous about making big commitments, Moore said.

ICG Communications fell $2.25 to $1.66 US, a nearly 58 per cent drop, after the telecom company warned of lower profits. Rockwell International fell $7.69 to $30.50 after the electronic controls and communications firm said soft demand would keep its profits for the year below expectations.

Gillette was down $2.19 at $27.63 after it said third-quarter sales would be flat because of problems in its Duracell battery business and continued weakness in the euro.

But Qualcomm rose $3.56 to $69.81 after a First Union analyst upgraded it to "strong buy" from "buy."

Energy stocks also got a boost from higher oil prices with Exxon Mobil up 58 cents at $89.65. BP Amoco rose 81 cents to $55.94.


-- Martin Thompson (mthom1927@aol.com), September 20, 2000

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