Canada’s main stock index dropped on Friday as a slide in commodity prices hurt the resource-heavy stock market but the index still posted a gain on the week. The sharp pullback was led by gold miners as the price of the precious metal fell more than 3% after the U.S. dollar rallied on data showing far fewer job losses in the United States than expected. Energy shares were also dragged as lower oil prices fell $0.99 to settle at $75.47, given the strong U.S. greenback. A higher U.S. dollar makes dollar-denominated commodities like crude more expensive for holders of other currencies and generally pressure prices.
The S&P/TSX composite index closed down 1.08% for the week and the index managed a gain of 0.4% while advances earlier this week had lifted the index to its highest level in over 14 months.
In the United States stocks advanced on Friday as data showed the economy shed far fewer jobs than expected last month, brightening the outlook for the economy and for profits. Economically sensitive sectors like industrials, technology, consumer and financials made the day’s best showing. The S&P financial index rose 1.8%.
Limiting the market’s advance was the dollar’s strength which helped fuel expectations that the U.S. Federal Reserve might have to start considering raising interest rates. U.S. employers cut 11,000 jobs in November, the smallest loss since the recession began in December 2007, and the unemployment rate also dipped. An improving employment market is considered crucial in fostering a recovery and in bolstering consumer confidence, which would help increase U.S. corporate profits. To foster a recovery, the Federal Reserve has kept U.S. benchmark interest rates close to zero percent, a stance that analysts said might have to change as the economy showed more signs of life. They will hold interest rates at these levels as long as possible but considering the drop in bond prices on Friday there is about a 53% chance that interest rates will go up in June 2010 up from a 33% chance before the employment report game out.
The Dow Jones industrial average gained 0.22%, the Standard & Poor’s 500 Index gained 0.55% and the Nasdaq Composite Index gained 0.98%. At one point during the day stocks were up significantly more with the Dow, the S&P 500 and the Nasdaq climbing to their highest levels in 15 months. For the week, the Dow rose 0.8%, the S&P 500 gained 1.3% and the Nasdaq advanced 2.6%.
As mentioned, U.S. employers cut far fewer jobs than expected last month in the best showing for the labor market since the recession began as investors bet a sustainable recovery was building. In Canada we added 79,000 jobs on Friday. In the United States the economy shed only 11,000 jobs in November, well below the 130,000 loss financial markets had braced for, while the unemployment rate unexpectedly dropped to 10% from October’s 10.2%.
The economy is bouncing from the bottom at a much greater rate than expected. While the jobless rate edged down, high unemployment remains a political headache for President Barack Obama and fellow Democrats, who are worried they will lose seats in Congress in next November’s elections without a faster recovery. Obama described the data as good news and a sign that better days are ahead but he emphasized that there is more work to do. “We still have a long way to go. I still consider one job lost, one job too many. The journey from here will not be without setbacks or struggle. There will be more bumps in the road. But the direction is clear,” Obama said.
While the economy resumed growth in the 3rd quarter after 4 straight quarters of decline, government stimulus fueled the growth and economists have worried a weak employment market would keep the recovery from becoming self-sustaining. This will encourage the Fed to be more vocal about an exit strategy from their highly accommodative posture. The Fed cut interest rates close to zero last December and has pumped more than $1 trillion into the economy to try to spur recovery from the worst recession in 70 years. Since December 2007 when the recession began, 7.2 million jobs have been lost.
This morning stocks are looking to open down as commodity prices continue to slide with the appreciation in the U.S. dollar and European shares and North American futures are down by a nominal amount
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
