Canada’s main stock index ended lower yesterday, weighed down by disappointing results and forecasts issued by Canadian heavyweight Potash Corp. Potash, the world’s largest fertilizer producer, led the decline in the Canadian stock market all day ending down 4.55% after it reported earnings and a profit outlook well below market expectations. The company is optimistic that fertilizer demand will improve this year.
Although, it is interesting to note that Athabasca Potash was up 23.88% after global mining giant BHP Billiton agreed to buy it for C$341 million in cash, expanding BHP’s asset base in the potash-rich province of Saskatchewan. Potash is used to make fertilizer which is used by farmers to improve their crop yields, the higher the crop yield the bigger the profit.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 0.62%, at 11,274.20. The index did manage to pare some losses after hitting its lowest level in more than 2 months earlier in the day. Within the index, 9 of the index’s 10 main sectors declined.
Investors have become a little reluctant as of late as they await month end the end of earnings season.
There was some relief after U.S. President Barack Obama focused on job creation rather than any concrete details of banking reforms in his State of the Union address on Wednesday night which spilled over into stock markets yesterday. Companies are doing a good job delivering some good quarterly earnings but their future outlook is a little bleak. While ongoing concern about the uneven U.S. economic recovery (lack of progress in housing and employment), and fiscal worries in Greece all contributed to negative investor sentiment in the short-term.
In the United States stocks dropped as poor outlooks from Motorola and Qualcomm (wireless phones) dented optimism in the technology sector while worries about Greece’s fiscal health dragged on sentiment. Several bellwethers this quarter have beaten modest expectations and still have been viewed unfavourably by investors.
Investors are looking to headlines. It was China and bank reform last week, then Obama’s speech and today, it’s Greece. Athens Greece may not be able to service its heavy debt load and this has made investors nervous and has prompted them to sell riskier investments such as stocks.
Stocks added to losses following news that U.S. Federal Reserve Chairman Ben Bernanke was confirmed by the U.S. Senate. The U.S. Senate backed Ben Bernanke for a 2nd 4-year term running the Federal Reserve, the world’s most powerful central bank, despite deep misgivings over his perceived policy missteps. Bernanke survived a revolt by lawmakers angry at big banks and their regulators, including the Fed. He still faces acute political pressure to ease economic strains at a time when the U.S. central bank is showing divisions over how much support the economy needs.
Senators credited Bernanke with steering the economy through a wrenching financial crisis but leveled withering criticism at him. They said his policies sowed the seeds of the turmoil and he initially showed a slow response to the crisis. “Bernanke fiddled while our markets burned,” said Senator Richard Shelby, the top Republican on the Senate Banking Committee. The surprise election last week of a Republican to a Massachusetts U.S. Senate seat long held by Democrats underscored the voter anger over Wall Street bank bailouts and the weak economy, undercutting support for Bernanke (imagine how President Barack Obama feels?). For awhile his confirmation appeared in doubt, rattling global stock markets.
The Dow Jones industrial average fell 1.13%, the Standard & Poor’s 500 Index lost 1.18% and the Nasdaq Composite Index fell 1.91%. Government data showed new orders for durable goods, or long-lasting manufactured goods such as washing machines and refrigerators, edged higher in December, and the number of workers filing claims for jobless benefits fell last week, signaling that the U.S. economy remains on the path to recovery.
Treasury Secretary Timothy Geithner said that “the economy is beginning to heal”, he added that “we have made a lot of progress over the last year in breaking the back of one of the worst recessions in generations.”
This morning stocks in Europe rose and U.S. index futures are pointing up as companies reported earnings that beat analysts’ estimates and investors awaited a government report that may show growth in the U.S. economy has accelerated. Futures on the Standard & Poor’s 500 Index rallied 0.3%. Of the 188 U.S. companies in the S&P 500 that have reported earnings since January 11th of this year, 150 have beaten analysts’ estimates, according to Bloomberg data following a record 9-quarter earnings slump. The U.S. economy probably grew at its fastest pace for almost 4 years in the final quarter of 2009, a government report today may show. If this fact is true we should see equities recover some of their recent losses.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
