Canada’s main stock market closed lower for a 3rd straight day yesterday as investors avoided buying equities ahead of the U.S. Federal Reserve meeting today and tomorrow. The index’s heavily weighted financials sector led the latest slide as investors opted to avoid adding to big investments. Tomorrow the Fed’s Federal Open Market Committee (FOMC) is expected to hold interest rates unchanged at near zero percent.
The index’s fall was limited as some big energy stocks pushed higher on hopes of higher prices for oil & natural gas down the road. Although, oil prices did drop by 3% this morning oil prices regained some of the lost ground from yesterday and are currently trading near $70 a barrel. Oil prices declined in value yesterday amid news that China’s crude consumption fell in August. Chinese oil demand slid 5.4% in August from July, the 1st month-to-month drop since March, as the world’s 2nd largest oil consumer reined in oil imports. Energy consumption in North America and Europe has been hurt by recession, leaving China as one of the few countries that continue to consume oil, gasoline and diesel in growing quantities. Some analysts expect a 2nd half recovery in demand from Europe and the U.S. combined with still decent energy appetite from Asia to boost oil prices.
The S&P/TSX composite index ended down 0.19% with 7 out of 10 sectors ending lower. The market continues sustain its value and investor interest. There does not seem to be anything to stop the stock market from racking up further gains this week, extending a rally that has shown no sign of letting up for 7 months, but analysts worry the move has left the market open to a pullback. Analysts warn of a sense of growing complacency amid some serious headwinds or obstacles that will eventually materialize, including the eventual withdrawal of the central bank and government stimulus that has supported much of the economic growth seen this year or at least ensured its contraction was not worse. Fiat and Chrysler CEO Sergio Marchionne warned last week that the “cash for clunkers” program in the United States “has really warped demand” and added that we will “see harsh reality in September (vehicle sales), it is going to drop.” In short, investors must look through the sustainable growth and the unsustainable growth as the economy must be able to grow on its own without the assistance of the government. If this is the case then stocks will advance further otherwise there will be a decline. If you look at the Dow Jones Industrial Average index — historically you have not seen such a great run in stocks since the end of the Great Depression. Conversely, stocks have gone up well in excess of 100% with each major bull market and thus, we have a long way to go even if we have already come a long way.
In the United States stocks ended the day mixed, the Dow industrials and the S&P 500 index fell as a drop in oil and other commodity prices hurt energy and materials stocks but the Nasdaq rose. The Dow Jones industrial average declined by 0.42%, while the Standard & Poor’s 500 Index declined by 0.34% but the Nasdaq Composite Index gained 0.24%. Adding to the overall negative tone was the Conference Board’s index of leading indicators posted a slightly weaker-than-expected gain in August.
Asian stock markets were slightly higher this morning amid optimism the region’s economies can help lead a global recovery. European markets also rose. Stock futures pointed to gains on Wall Street by about a ½ of 1% and oil prices firmed up.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
