Canadian stocks fell in the final hour of trading yesterday after an influential analyst downgraded Wells Fargo & Co. Wells Fargo, the largest U.S. home lender this year, had their shares cut to “sell” as the report said earnings were boosted by hedging gains rather than improving business trends.
Canadian bank and insurance shares fell in the wake of the release of this report and as profit-taking pushed gold-mining shares lower despite higher gold prices. The S&P/TSX composite index closed down 0.83%, its 1st significant drop in a week, as all 10 sectors fell. The stock market has not advanced much recently as investors have tried to reconcile mixed earnings reports and economic indicators from Canada and the United States, a stronger Canadian dollar, and commodity prices that have pushed higher. Although, with every recent dip in the stock market buyers came in to support a floor which limits the size of any dip that has been experienced since March 9th (when the current bull market began).
Today fertilizer producer Potash Corp will announce earnings which could have an influence on the direction of the Canadian stock market. The investors will be looking for insight on global potash demand and pricing. Oil & gas shares also slipped even as the price of crude jumped nearly 3% to settle above $81 a barrel, its highest close in more than a year. The price increase was due to a drawdown in U.S. refined oil inventories and as a rise in global stock markets showed optimism about the economy and a potential rebound in energy demand.
Weekly data from the Energy Information Administration (EIA) revealed a larger-than-expected 2.3-million-barrel draw in gasoline stocks in the United States, the world’s largest energy consumer last week, while crude inventories rose 1.3 million barrels, less than the expected 1.8 million-barrel rise.
Oil prices were also boosted by the fact that China’s State Council voiced confidence that China’s economy has recovered from the global financial crisis, performing better than expected in the 1st nine months of this year.
In the United States stocks fell, hurt by a late sell-off in financial shares. For most of the day, stocks had traded higher as results from Morgan Stanley and Yahoo Inc. added to optimism about corporate profits. In short, the market is susceptible to bad news right now.
The Dow Jones industrial average declined by 0.92%, the Standard & Poor’s 500 Index declined by .89% and the Nasdaq Composite Index declined by 0.59%.
U.S. economic conditions stabilized or improved modestly in most parts of the country, according to a Federal Reserve report that suggested the economy was slowly clawing out of a recession. In its “Beige Book” of anecdotal reports on the economy, the Fed noted improvement in two of the hardest hit areas which are residential real estate and manufacturing. Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered.
In short, the economy has turned the corner, stocks have rallied strongly and the fundamentals are strong but expect some volatility as we enter unchartered territory.
This morning things are looking down overseas and there will be some headwinds at the start of the trading day in North America. That said things change quickly these days.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
