Canada’s main stock index fell yesterday, dragged lower by weakness in the energy & metals sectors. The index was also weighed down by data showing a slow recovery in the United States economy. Canadian bank stocks ended mixed after an early rise driven by news of a 16% increase in Bank of Montreal’s (BMO) quarterly profit. All 5 big bank stocks led advancers in the morning but as the day progressed the gains eroded. It is clear that investors are willing to buy on dips but at the same time they are not in a hurry to bid up stock prices much further without compelling evidence that the economy is improving without further central bank and government stimulus.
The S&P/TSX composite index finished down 0.73% on the day with the materials sector leading the decline.
In the United States stocks fell on “lackluster” economic data but losses were pared after the Federal Reserve raised its expectations for growth in 2010. Stocks fell early in the day as revised government data on Gross Domestic Product (GDP) showed the U.S. economy grew at a slower-than-expected pace in the 3rd quarter. Hewlett-Packard a technology bellwether said in its earnings results that the U.S. economy remained challenging, impacting its share price and overall investor sentiment. Investors were also encouraged by the minutes of the FOMC’s (Fed meeting) most recent meeting that showed officials are increasingly confident about a durable recovery for the U.S. economy.
I would expect stock market volumes and action to decline going into the holiday weekend. The U.S. stock market will be closed tomorrow in observance of Thanksgiving Day. On Friday, it will be open for only ½ a day due to the holiday, as Friday marks Black Friday, a key holiday shopping day. Financial shares led declines as investors worried about bank capital levels after news that the Fed asked lenders that were part of its “stress tests” to submit plans to repay government money. U.S. home prices rose in September, according to the Standard & Poor’s/Case-Shiller index, but the increase was less robust than forecast. Home prices for that month were unchanged, according to a separate report from the U.S. Federal Housing Finance Agency. Stable home prices are key to a sustainable economic recovery.
The Dow Jones industrial average dropped 0.16%, the Standard & Poor’s 500 Index dripped 0.05% and the Nasdaq Composite Index fell 0.31%.
Federal Reserve officials are increasingly confident the U.S. economic recovery will be durable, but do not see employment or inflation picking up soon, minutes from their November meeting showed. Senior Fed officials, meeting on November 3rd & 4th also expressed concern that their plans to keep interest rates low for a prolonged period could have negative repercussions, including possible speculative activity in financial markets. “Most participants now view the risks to their growth forecasts as being roughly balanced rather than tilted to the downside,” according to the minutes, which were released yesterday and were accompanied by upward revisions to policy makers’ growth forecasts.
The Fed cut benchmark interest rates to near zero percent last December and has pumped more than $1 trillion into the economy to beat back a severe recession and restore growth. After their meeting earlier this month, policy makers repeated a pledge to keep rates exceptionally low for “an extended period.” “Any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching,” the minutes said. The U.S. currency dropped to a 15-month low against a basket of major currencies last week.
Fed Chairman Ben Bernanke devoted an unusually long portion of a speech delivered in New York last week to discussion of the dollar, saying he was keeping an eye on its movements but suggesting it was not an overwhelming influence on policy for now. The minutes indicated policy makers are not widely concerned about inflation in the medium term. Estimates from FOMC members foresaw uncomfortably high unemployment of as much as 7.5% by the end of 2012. “The weakness in labor market conditions remained an important concern,” the minutes said. “The considerable decelerations in wages and unit labor costs this year were cited as factors putting downward pressure on inflation.” Core inflation, which excludes volatile food and energy costs, was seen well within the Fed’s presumed ceiling of 2% through 2012, suggesting increases in interest rates are a “way off.”
This morning things are looking up with commodity prices rebounding and the U.S. dollar dropping.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
