Yesterday was a holiday in Canada but risk is back in vogue and we have seen a full reversal of investor sentiment that we saw last week. The India elections sparked the risk rally with the market friendly Congress Party winning a mandate to pursue economic reforms. The Sensex (their local stock index) is up 25% in 2 days and this has boosted equity markets globally.
On Friday, North American markets continued to experience a major set-back to the week, with the TSX falling. The S&P/TSX composite index fell 4 out of 5 days and lost 472 points over the week, a drop of 4.6%. Toronto’s decline was greater than the 3.6% drop in the Dow Jones industrial average and the 3.4% fall of the NASDAQ.
The S&P/TSX capped the week with a drop of 84.21 points on Friday, leaving the index at 9,764.99. A week earlier, on May 7th it closed at 10,237.99. The TSX is now more than 5,000 points below the level it closed at on May 15, 2008.
U.S. stocks also stumbled on Friday as energy shares dropped along with oil prices on worries about weak demand, overshadowing fresh reassuring economic data. A batch of reports, including consumer prices and sentiment, reinforced hopes that the recession was easing and gave the market an early lift, but it did not last. Investors are also trying to assess the sustainability of the rally from the bear market low and how deep a correction stocks could see. The S&P 500 has risen 30.5% from a 12 year closing low hit 2 months ago, but it ended its worst week since the rally began.
The Dow Jones industrial average dropped 0.75%, the Standard & Poor’s 500 Index declined 1.14% and the Nasdaq Composite Index dropped 0.54%. Struggling General Motors said it will drop about 1,600 U.S. dealers as it tries to cut billions of dollars in operating costs and debt before an expected bankruptcy filing at the end of May. GM’s stock dropped 5.2% to $1.09. The move comes on the heels of Chrysler saying it will shut 789 dealerships by early June. The automaker filed for bankruptcy protection at the end of April.
Data showed consumer prices were unchanged last month, while consumer confidence in May pushed to its highest level since Lehman Brothers’ collapse last September, which sent shock waves through the financial system. The reports, along with industrial output that declined at a slower pace, gave more signs that the recession’s worst phase may be abating.
Despite recent optimism about the economic outlook, analysts said worries remain that the road to recovery will be a bumpy one. Which fork in the road do we take? Do we go left and the economy rolls higher so the stock market continues higher? Or do we take a right and the stock market stalls because the economy doesn’t snap back?”
Yesterday stocks rallied (Canada was closed), as better than expected results from the #2 U.S. home improvement retailer, Lowe’s, helped spark broad based buying on hopes the recession is easing and consumer spending is stabilizing. Investors’ optimism extended to sectors closely aligned with economic growth, including homebuilders, banks, energy companies and retailers. Lowe’s quarterly numbers also served as a fresh catalyst for investors eager to sustain the market’s rally and offered a sharp contrast to last week’s disappointing April retail sales data.
The Dow Jones industrial average gained 2.85%, the Standard & Poor’s 500 Index rose 3.04%, and the Nasdaq Composite Index rose 3.11%.
Tim Geithner says markets are mending but jobs at risk: U.S. Treasury Secretary Timothy Geithner said yesterday that borrowing costs were falling as credit markets gradually thaw, but warned a painful period lies ahead for American consumers. Geithner said unemployment will likely keep rising for some time as the Obama administration tries to find a way to wrench the economy out of recession
North American markets appear to be signaling a moderately higher open this morning after Home Depot posted stronger-than-expected quarterly results. Analysts expect housing construction could be showing tentative signs of stabilizing after a 3 year slide but will likely still see some headwinds. The S&P 500 and Dow industrial stock index futures pared gains on Tuesday, while Nasdaq futures turned negative after a report showed new U.S. housing starts and permits unexpectedly fell to record lows in April, tempering hopes of economic stabilization.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
