Canada’s main stock index dropped yesterday as oil prices fell and Manulife Financial surprised and unnerved investors by announcing a surprise, C$2.5 billion stock offering in order to fortify their balance sheet. Manulife shares fell 6.1%, Manulife is North America’s largest life insurer and they acknowledged that the equity issue would dilute its earnings per share (EPS) and return on equity (ROE).
The S&P/TSX composite index finished 0.45% but at one point the stock market was down by more than 1%. Yesterday’s drop ended the 4 day winning streak for the index. The economic news has generally been a bit weaker recently particularly in U.S. residential real estate. A record 1-in-7 U.S. mortgages were in foreclosure or had at least one payment past due in the 3rd quarter, according to industry data that raised questions about a recovery in the housing market.
The pullback in stocks came after the TSX rose to a 13-month high earlier this week. Investors are pausing in hopes of getting a clearer perspective on the economy and the sustainability of any recovery.
In the United States stocks slid as another batch of economic data pointed to the fragility of the global economic recovery and a brokerage’s dim view on the semiconductor sector hit technology shares. The benchmark S&P 500 suffered its worst 1-day percentage fall in 3 weeks as investors feared that weakness in housing and employment markets would persist. On the economic front, the Conference Board’s index of U.S. leading economic indicators, a gauge of the U.S. economy’s prospects, rose 0.3% to 103.8, the highest since September 2007. But the increase fell short of Wall Street’s expectation for a rise of 0.5%. In short, given the recent run up in stock prices and in their valuations some investors are just being a little cautious and are pausing to take some profits.
The Dow Jones industrial average fell 0.90%, the Standard & Poor’s 500 Index fell 1.34% and the Nasdaq Composite Index fell 1.66%.
Oil prices fell as U.S. crude prices dropped $2.12 to settle at $77.46 a barrel. Investors are assessing where the economy is really going and the economy needs to grow to justify higher oil prices. Investors have scoured economic data in recent months for signs of a recovery that might boost global energy demand. Analysts said mild weather in the United States and high global oil products stocks held in storage on land and on floating vessels would limit oil’s potential upside at this time. On the supply side, the Organization of the Petroleum Exporting Countries (OPEC) should hold oil output steady when it meets in December as current prices do not suggest the need to change supply, the head of Libya’s National Oil Corporation said.
This morning stocks, the Canadian dollar and commodities are all looking down about 0.50% as yesterday’s negative sentiment carries into this morning.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
