Canada’s main stock market fell hard yesterday as sharply lower commodity prices and weak U.S. consumer confidence numbers prompted profit taking after a big advance in the stock market. Weakening job market hit consumer confidence in July and could prevent a near term economic recovery. Some disappointing quarterly corporate results in the United States also compounded the sell-off as Viacom (media) and Office Depot both delivered disappointing quarterly results and spurred investors to seek more evidence of sustainable economic rebound with ‘depth and breath’.
The decline was led by the index’s materials sector, which fell 3.5% on a drop in gold prices. The energy sector dropped 1.92% as the price of oil fell.
A little bit of profit taking is not surprising – we have had a long run and some investors are being cautious. The S&P/TSX composite index closed down 186.89 points, or 1.74% with 9 of its 10 main sectors lower, including the financials sector which has led recent gains, which fell 1.3%. On Monday the TSX index rallied to its highest level in nearly 10 months and after a 44% climb from the five year low it fell to on March 9th of this year.
In the United States the Dow and the S&P 500 dipped a little as investors shrugged off weak consumer confidence (consumer confidence impacts commodities more than the broader market) and focused on positive earnings reports while down playing the negative earnings reports. Stocks recovered most of the day’s losses late in the day, led by the healthcare sector (healthcare is not a factor in Canada). Strong earnings have given a second wind to a stock market rally that was halted in June after a 40% gain in the S&P 500 from its 12 year closing low in March. Stocks have seen an 11% rally in 2 weeks. With stocks’ recent sharp gains, the investors were looking for a reason to take a breather.
The Dow Jones industrial lost 0.13%, the Standard & Poor’s 500 Index dropped 0.26% while the Nasdaq Composite Index gained 0.39%. An index of U.S. consumer confidence dropped to 46.6 in July from 49.3 in June, below analyst expectations of 49.0, recording its 2nd consecutive decline as sentiment remained hampered by a difficult job market. U.S. crude settled down $1.15 at $67.23 a barrel. Optimism that a turnaround in the global economy could lift slumping fuel demand has supported crude prices this year. Crude fell from record highs of $147 a barrel last July to below $33 a barrel in December as the recession battered world consumption (by 2 million barrels a day from about 85 million to 83 million — note the large price volatility with a small change in demand). A Reuters poll of analysts forecast oil prices will average $73 a barrel next year, up from an average 2009 price prediction of $58.23 a barrel. The chief executive of Saudi Aramco, the state oil company of Saudi Arabia, expressed confidence the global fall in oil demand was temporary and that consumption growth would eventually resume.
Investors were also awaiting U.S. weekly oil inventories data from the American Petroleum Institute due out late Tuesday and data from the U.S. Energy Information Administration data due out on Wednesday which has added to the recent price volatility in oil.
This morning stocks are looking positive this morning but commodity prices are down which will weigh on the Canadian market.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
