The Canadian stock market dropped to its lowest close in nearly 2 months yesterday as a drop in oil prices pushed the share price of energy companies down and as surprisingly bleak U.S. home sales data raised doubts about economic recovery in that country. The latest slide in the heavily weighted energy sector came as oil prices fell more than 2% on worries about demand in the United States, the world’s largest fuel consumer. In the United States, sales of newly built single-family homes unexpectedly fell 3.6% last month, stirring fears that economic recovery may be falling flat or at least pausing for a minute.
Shares of gold mining companies were among the key drags as the price of bullion hit a 3-week low in the face of a stronger U.S. dollar, which makes bullion more expensive for non-U.S. dollar holders. The S&P/TSX composite index fell 248.21 points, or 2.25%, to 10,805.33. It was the markets lowest level since September 3rd and its 4th straight lower close. The index is up 44% from the 5-year low in hit on March 9th of this year. We are seeing significant profit taking in some of the stocks and sectors that have performed extremely well from the March lows. Investors are becoming very anxious about what the global economy will do once the economic stimulus starts to be removed. Most analysts still expect stock markets to deliver a strong finish into the end of the year.
In the United States stocks dropped in a broad sell-off sending the benchmark S&P 500 lower for a 4th straight day, after weak data on new home sales heightened concerns about the pace of the economic recovery. Financials, technology, materials and industrial sectors, which led advances during the recovery have also led declines recently. The S&P 500 is now up 54.1% from the 12-year closing low of March 9th but it has also dropped by 5.04% from its most recent peak hit on October 19th.
The Dow Jones industrial average dropped 1.21%, the Standard & Poor’s 500 Index dropped 1.95% and the Nasdaq Composite Index dropped 2.67%. During the day, both the S&P 500 and the Nasdaq broke below key technical levels as the sell-off accelerated. Both indexes closed below their 50-day moving average for the 1st time since July, a bearish technical signal. Additionally, the S&P 500 wiped out its gains for October and is now on the verge of snapping a string of 7 straight months of gains. The CBOE Volatility Index Wall Street’s favorite fear gauge, ended up 12.5%, its biggest 1-day percentage gain since August.
The housing data was an additional hurdle for a market already uncertain about the future of the government’s $8,000 home buyer tax credit. The tax credit for 1st time home buyers would be extended until the end of April and expanded to cover repeat buyers under a deal reached by key senators. The housing data underscored just how bad the real estate downturn is amid a tough job market, tighter lending and sliding home values.
Things look like they may stabilize or bottom out this morning but then again, a lot seems to change with very little notice. I believe that most investors are relieved to see the pull back that equity markets have experienced in the last 4 days but the long-term fundamentals are pretty sound which will bode well for a short-term run as bargain hunters will eventually remerge at this current levels.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
