Canada’s main stock market edged out a small gain yesterday after rebounding from a lower open and near a 7-week low as declining energy shares were offset by renewed strength in the gold and financial sectors. Energy shares continued to endure downside pressure as crude oil prices continued to weaken, which at one point dipped below $74 a barrel.
The Toronto Stock Exchange’s S&P/TSX composite index finished up 0.06%. The index did open down about 0.50% then moved up by about 0.50% but gave up those gains late in the day. The TSX swung to its lowest level since December 9, 2009 on concerns over the global economic recovery after China’s clamp down on lending raised doubts about the robustness of Chinese demand for commodities such as oil.
In short, investors are waiting for more guidance on the impact of China’s policy moves, Capitol Hill’s plan to rein in or restrict big U.S. banks, 4th quarter earnings, 2010 corporate outlooks and further evidence that the global economic recovery is gaining traction. In addition, investors are also awaiting the outcome of a 2-day policy meeting by the U.S. Federal Reserve, which was taking place in the shadow of fierce Senate debate over Ben Bernanke’s reconfirmation as head of the U.S. central bank. The State of the Union address by U.S. President Barack Obama today is also going to be closely watched by investors for clues on how his administration will further stabilize the fragile U.S. economy and deal with the ballooning government deficit and total debt.
In the United States stocks slipped late in the day due to political and regulatory anxiety offsetting solid earnings and improved consumer confidence data. Gains for stocks faded late in the day as investors turned cautious before the Federal Reserve’s (FOMC) policy announcement this afternoon and President Barack Obama’s State of the Union address tonight.
Most people expect the FOMC to leave rates unchanged. They are not expecting a big statement at this time just because Bernanke still not confirmed for a 2nd term. The Senate is expected to vote this week on confirmation of Bernanke for a 2nd term as Fed chairman. Bernanke has been criticized for the Fed’s handling of the financial crisis, but Senate leaders predict he will be confirmed.
Investors are very interested in what the president is going to say. How is his presentation is going to come across? Does it look like he is changing the message? Is he going to talk about his mistakes? What about employment? What about the deficit? Is he going to remain true to the values that he ran on? Has he succumbed to more of a populist vote? Etc…
The Dow Jones industrial average dropped 0.03%, the Standard & Poor’s 500 Index dropped 0.42% and the Nasdaq Composite Index dropped 0.32%.
After the closing bell, Yahoo Inc. reported 4th quarter earnings in line with Wall Street expectations but a number of companies turned in positive earnings. Apple continued to gain after reporting strong quarterly results and on growing anticipation over its tablet product launch on today.
Stocks started the day down but stocks rose on data showing consumer confidence rose for a 3rd straight month in January to its highest level since September 2008, easing concerns about individual spending. U.S. consumer confidence in January hit its highest level in nearly 18 months, but a closely watched housing index showed an unexpected decline in November home prices, giving a mixed picture of the economic recovery (see below).
A decline in job losses in recent months and gains in the stock market have helped improve consumers’ mood as the U.S. economy returned to growth last year after the worst economic slump in decades. However, concerns remain about the sustainability of the recovery after the most severe housing market downturn and highest unemployment in more than 26 years.
In the United States, the closely watched Standard & Poor’s/Case-Shiller indexes released yesterday showed that home prices slipped in November.
Overall we had positive demand conditions for U.S. residential real estate and a market that was very well supported by the government programs via the 1st time home buyers tax credit of $8,000 which was recently extended but as soon as that government program showed signs of ending, buyers pulled back. In short, demand is not self-sustaining which will make it hard to reduce government stimulus or increase interest rates.
The International Monetary Fund (IMF) sharply raised its forecast for global growth yesterday to 3.9% from an October estimate of 3.1%. “I don’t think we’re that optimistic but we’re less pessimistic than we were in the last World Economic Outlook in October,” said IMF chief economist Olivier Blanchard. “If you look at what our forecasts are for the recovery in the major advanced countries, these are still weak numbers. They’re better than they were 6 months ago, but they’re still quite mediocre.”
While an economic recovery appears to be gaining traction, the IMF warned the financial system remains fragile in the richer countries and banks will need a lot more capital. Lending remains tough in developed countries hardest hit by the credit crisis, which will constrain their pace of growth. In turn, the IMF reiterated its view that it was too soon to raise interest rates or remove many of the emergency financial supports put in place by central banks.
This morning the MSCI World Index fell for a 6th day, its longest losing streak in almost a year, on concern the global economic recovery will falter. The MSCI Index dropped about 0.2%, bringing its 6-day drop to 5.2%. Futures on the Standard & Poor’s 500 Index are flat while oil prices are pointing up. Investors are concerned that economic growth will falter as the Federal Reserve and the European Central Bank curb stimulus measures and economists predict central banks in China, India, Brazil and Australia will push up borrowing costs. Earnings setbacks also hurt stocks this morning as SAP AG, the biggest maker of business-management software, missed analysts’ estimates this morning. As mentioned more than 130 companies are scheduled to release results this week, including Abbott Laboratories, Boeing Co. and Caterpillar Inc. today.
I find it refreshing to see stocks take a bit of breather and this will give fundamentals a chance to catch up to current valuations. It is also encouraging to see stocks only retreat by a nominal amount considering some of the headwinds that have come to fruition within the last week. This suggests that there is a lot of investor resiliency in combination with a functioning equity market versus the mass exodus that we experienced a year ago (irrespective of fundamentals).
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
