Canada’s main stock index ended lower yesterday for a 2nd day in a row, pulled down by falling oil & metal prices, as some investor caution returned to the overall market. Oil prices settled more than 4.47% lower, below $66 a barrel, as weak U.S. home sales data and high crude oil inventories in the top energy consumer stirred doubts about a potential oil recovery.
In the United States crude stockpiles climbed by 2.8 million barrels in the week of September 18th and inventories of gasoline also rose sharply, indicating that demand remains fragile in the world’s largest oil consumer. The U.S. dollar also rose after central banks said they would scale back some emergency lending programs in light of improved economic conditions, weighing on prices for commodities denominated in the U.S. dollar. Adding more concern about global demand, August crude imports in Japan fell more than 10% from a year ago, the 7th straight monthly decline.
Mining companies fell by 2.2%, financials were down 2% and the energy sector fell 2.5%. The S&P/TSX composite index closed down 231.78 points, or 2% to end at 11,285.76. We are returning to a bit of caution and that’s probably a positive overall. All 10 sectors were lower on the day. It is the Canadian markets 5th decline in 6 days. In the recent past any drop in stock markets has been used by investors to add to their positions.
In the United States stocks fell as signs of weakness in housing and investors’ worries that authorities might be curbing stimulus efforts too soon sparked caution. World central banks said they would scale back infusions of U.S. dollars into their banking systems, fueling unease triggered a day earlier when stocks sold off following the U.S. Federal Reserve’s decision to slow purchases of mortgage debt. That program has been one of the key pillars of the Fed’s efforts to support mortgage lending. All 10 S&P 500 sectors also fell, with materials, energy, financials and industrials leading declines.
Stocks were pushed lower, not only because the global economic recovery is fragile but also because of how far the market has run in such a short timeframe. The Fed statements were a little bit of a reality check.
The Dow Jones industrial average dropped 0.42%, the Standard & Poor’s 500 Index dropped 0.95% and the Nasdaq Composite Index dropped 1.12%.
After the closing bell, investors were hit by more disappointing news. Research In Motion (RIM), maker of the BlackBerry device, posted quarterly revenue below Wall Street forecasts, sending its shares down 9.7% (11.5% this morning) which will weigh on the Canadian stock market.
Sales of previously owned homes in the United States unexpectedly fell for the first time in 4 months in August, indicating a less vigorous pace of economic recovery from a deep recession then investors hoped for or expected. The National Association of Realtors (NAR) said sales of existing U.S. homes fell 2.7% to an annual rate of 5.10 million homes, disappointing market expectations for a rise to a 5.35 million home pace. That was the 1st fall since April.
The housing report did little to change views the economy is recovering from its worst recession in 70 years but raised doubts about how long the rebound will last. It is safe to assume that in the 3rd quarter the economic growth is going to be very good, the question is how sustainable is this recovery and will the housing market be able sustain itself once the emergency government aid is removed. A top White House economic adviser, Christina Romer, said the U.S. economy was “back from the brink”, but warned policy-makers against removing fiscal and monetary stimulus too quickly. U.S. home sales have been boosted in recent months by an $8,000 government tax credit for 1st time buyers and an improving economic picture as well as the lowest prices and mortgage rates in decades. The tax credit expires at the end of November and NAR chief economist Lawrence Yun said the industry group was lobbying to have it extended into next year to avoid what he called a double-dip recession for the housing market. A housing sector collapse was the main force behind the recession, which started in December 2007.
Leaders of the G20 group of rich and developing nations were gathering in Pittsburgh to discuss ways of rebalancing the world economy to prevent another banking crisis and recession. In general things are looking better this morning with the exception of RIM’s stock price.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
