May 12, 2001

North American markets have been trending upwards over the last month. The TSE 300 index at 8024 is up 7.8% from the 7444 level of April 3, 2001 but still down 10% from year-end 2000 and down 29.6% from its 52-week high of 11,402. It now trades at 24.1 times trailing earnings to yield 1.51% on cash dividends. This compares with19.3 times earnings and a yield 1.59% at year-end 2000. The Dow Jones Industrial Index at 10821 is up 14% from the 9486 level of April 3 and is down only 7.9% from its all time high of 11,750 on January 14,2000. At its current level it trades at23.2 tomes earnings to yield 1.64%. This compares with 19.2 times earnings and yield 1.85% at April 3, 2001 and 20.5 times and 1.67% at year-end 2000. The S&P 500 index at 1246 is up 12.7% from the 1106 level of April 3/01 but down 19.8% from its high of 1553 on March 23, 2000 and now trades at 24.9 times earnings to yield 1.25% on cash dividends. This compares with 1329, 24.7 times and 1.2% at the end of December. The NASDAQ at 2107 has made an important advance of 25.9% from the 1673 level of April 3/01 but is still very much down, 59% from its March 9, 2000 high of 5,132.

Bond markets, in the last month, reacted poorly in the face of competition from better equity markets and also from the fear that there may be no further cuts in interest rates. 10-year Canadas are currently trading at a 5.87% yield compared with 5.40% yield on April 3 and with 5.34% at year-end 2000, while 2-year Canada bonds trade at 4.90 % compared with 4.72% a month ago but still better than the 5.27% yield at the end of last year. US 10-year bonds currently trade at a 5.46% yield compared with 4.93% yield at April 3 and the 5.10% level at the end of December, while 2-year treasuries now trade at a yield of 4.32% compared with 4.12% a month ago and 5.16% at year-end 2000.

So far this year, the US Federal Reserve Board lowered the overnight rate four times, January 3, January 31, March 20 and April 18, each time by one-half of 1%. The Open Market Committee meets next on May 15 and while there are mixed signals in the economy, a further cut, perhaps this time a quarter of a percent could take place.

US Producer Price Index rose 0.3% in April after falling 0.1% in March and retail sales in the US continue strong, up 0.8% in April. Nevertheless, industrial production fell in April for a seventh straight month, the longest string of declines since 1982. Payrolls plunged 223,000 in April after declining 53,000 in March and the unemployment rate rose to 4.5% in the US, the highest in 2 1/2 years. Economies continue to be weak in Japan and Europe. The ECB on May 10 cut their minimum refinancing rate by 25 basis points as did the Bank of England. In the face of this the US$ continues to be strong.

The last edition of this newsletter, that of April 3, 2001, put forth the view that much of the damage done to North American stock markets had been carried out and that markets should now act favorably to companies showing growth in earnings. This appears to be taking place. In the following section, Latest Picks, some of these companies are reviewed along with the mention of seven companies for the first time.

The current edition of LATEST PICKS will look at several stocks, some overlooked.

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