Canada’s main stock index sagged on Friday but managed to end slightly higher as resource shares rose on commodity price strength, overcoming weakness in the financial sector which led gains for the week. The big energy and materials sectors, which combined accounted for 45% of the index’s total weighting, gained momentum by mid-afternoon to pull the broader index higher.
Gold touched $960 an ounce and oil settled higher at $72.74 a barrel, helping to lift the resource sectors higher as the materials sector was up 1.4% and the energy group advanced 1.2%. The financial sector fell 1.1%. The S&P/TSX composite index closed up 0.4%, the index was up 1.4% for the week.
Bank stocks have had a great short-term run and many have doubled from their recent lows which was only 6 months ago. In turn, investors could experience a bit of profit taking but the stock market has been exceptional resilient. Much uncertainty is still linked to worries over the pace of the economic recovery which will make further gains in stocks harder to come by in the short-term but not impossible.
In the United States stocks mostly slipped on Friday after a weak consumer sentiment report offset positive news from bellwethers Dell and Intel. All three major indexes still posted their 2nd weekly advance, although the gains were relatively modest. With U.S. stocks up about 50% from multi-year lows on March 9th, investors are concerned that the rally may have run its course.
Consumer sentiment in August slid to a 4 month low on worries about high unemployment and personal finances, a Reuters/University of Michigan survey showed, also curbing the market’s appetite for risk. Investor expectations are higher and any kind of data that doesn’t exceed forecasts with big numbers cannot move the stock market higher – stocks move on news.
The Dow Jones industrial average dropped 0.38%, the Standard & Poor’s 500 Index dropped 0.20%, while the Nasdaq Composite Index was up 0.05%. For the week, the Dow advanced 0.4%, while the S&P 500 gained 0.3% and the Nasdaq rose 0.4%.
In other data released on Friday, a report from the Commerce Department showed consumer spending edged up 0.2% in July, largely driven by the government’s “cash-for-clunkers” program, while personal incomes were flat in June.
For Wall Street, the 2nd quarter may be a tough act to follow. In turn, a more realistic mood for sustainable stock market gains is starting to take hold. With just a handful of companies left to report, the S&P 500’s 2nd quarter earnings are projected to decline 27.3% from a year ago, according to Thomson Reuters data. That compares with a forecast for a 36% decline from the year-earlier quarter at the start of the earnings season, and a 35.5% drop in the year’s 1st quarter from the same period in 2008.
Some 73% of the companies that reported results beat estimates, Thomson Reuters data showed. Wall Street used the abundance of positive surprises as the catalyst to keep the stock market’s rally going and to substantiate early gains. But it remains to be seen whether the broad market’s bull reaction can be repeated in coming weeks or months. What is missing in the most recent stock market performance is revenue growth. Deep cost cuts have benefited corporate balance sheets and stimulus money.
Analysts have been quick to point out that corporate earnings will falter without a boost in revenue, which has lagged as recession weary consumers and businesses remain tight with money. There is only so much they can cut. In turn, looking for the consumer is very critical in the forthcoming weeks.
Global oil demand fell 3.1% to 83.7 million barrels a day from a year earlier, according to the Paris based International Energy Agency (IEA). Demand will drop 2.7% to 83.9 million barrels a day this year. Oil prices have advanced on better-than-expected GDP and jobs data in the United States, the world’s largest energy consumer.
The majority of economic data that continues to circulate around is positive and suggests that the worst is definitely over and the recovery has likely begun in most economies around the world. However, this morning European shares fell after the Chinese stock market dropped nearly 7%. In Japan, the country’s opposition party came to power in a landslide victory. A decline in the Chinese stock market has caused a ripple throughout the world, since China has continued to grow during the world recession. Questions about China’s ability to sustain stimulus fed growth rates have fueled fears that any global economic recovery may not last. Investors are nervous about government measures to restrict the bank lending that has helped push stock markets higher. Chinese stock prices rose more than 80% earlier this year before falling back in mid-August.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
