Canada’s main stock index fell yesterday after hitting a 3 month high the previous day as lower oil prices pulled down the heavily weighted energy sector which dropped 2.1%. Oil is a key Canadian export and the price or change in price of oil will often dictate the direction of the stock market. Oil prices slipped below $50 a barrel on demand and inventory forecasts. The S&P/TSX composite index fell 0.58% after three straight sessions of higher closes.
The slide in the TSX did not spur much concern among analysts and investors as the index started the day up 24% from the multi-year low hit on March 9th. In short, we have some profit taking because stocks have been on a nice run but the earnings in the U.S. are the focus here (especially banks). Earnings reports from key U.S. banks such as JP Morgan will likely set the direction for markets for the balance of the week, with investors hoping the reports will show the fragile U.S. financial sector has stabilized.
In the United States, stocks fell as a surprising drop in retail sales dented hopes the recession was abating and financial shares slid on fears that Goldman Sachs $5 billion share offering could prompt others to follow suit. Retail sales in March snapped 2 months of increases and sparked stock selling across the stock market including retail and technology stocks. However, it was the financial sector, which had recently led the stock market’s 5 week rebound from 12-year lows, who endured the biggest setback with the S&P financial index down 7.7%. Consumer spending accounts for about 2/3rds of U.S. economic activity and is a key driver to corporate profits.
There is fear that other banks (besides Goldman), wanting to pay back government funds, may want to raise cash by issuing shares and diluting current investors but removing the overhang of the government. The gloomy news on retail shows that maybe the economy hasn’t turned around in the last 5 weeks as much as the stock market rally would suggest or justify. In recent weeks, investor sentiment had been lifted by some reassuring economic reports, including some on housing reports which suggested the economic slump was “abating”. In a major speech, U.S. President Barack Obama said there were signs of recovery, but “by no means are we out of the woods just yet.”
The Dow Jones industrial average fell 1.71%, the Standard & Poor’s 500 Index fell 2.01%, the Nasdaq Composite Index fell 1.67%. Stocks are looking to open a little mixed this morning with Europe and Asia up slightly and the United States is down by a marginal about but oil is up and thus, Canada could fare better than its global counterparts.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
