Canada’s main stock index ended only slightly lower yesterday after a sharp fall early in the day as surging gold mining shares cushioned a drop in energy shares on worries that Europe’s banking problems could derail global economic recovery. Gold miners rose as bullion prices climbed on safe-haven buying, and by the end of the day energy and financial shares had trimmed early losses.
The index was able to find support at around its 200-day moving average of around 11,500, a technical level closely watched by strategists and market watchers. Energy shares and Canadian banks, even though they have limited exposure to European debt, were caught up in a global sell-off early in the day that helped send the TSX down 2%. Catalysts for the sell-off included the necessity for the Bank of Spain to rescue a local lender over the weekend and the military tension between North and South Korea.
The Toronto Stock Exchange’s S&P/TSX composite index finished the day down 0.03%, at 11,518.08.
In the United States stocks staged a furious late-day rally to push the S&P 500 into positive territory as the focus shifted from European debt woes to buying after shares hit 6-month lows. Major U.S. indexes had fallen more than 3% early in the day on growing questions about the stability of the European banking system after a small Spanish bank failed over the weekend. Equities have been under nearly constant selling pressure the last few weeks. The morning’s action reflected the market’s nervousness as the S&P 500 fell through the May 6th “flash crash” level to its lowest level since early November 2009, down 14.5% from its April 26th closing high of this year.
In short, the market stopped and thought that maybe investors have sold too much and that maybe they have priced in Europe too much. Investors are beginning to realize that there is not a silver bullet that can instantly fix this problem. Strategists linked the rebound in stocks to strengthening of the Euro. The single currency earlier fell to an 8 ½ year low against the yen and approached a 4 year low versus the U.S. dollar, while safe-haven U.S. Treasuries rallied.
The Dow Jones industrial average dropped 0.23%, but the Standard & Poor’s 500 Index gained 0.04% while the Nasdaq Composite Index fell 0.12%. European markets fell to their lowest level in nearly 9 months. The Chicago Board of Options Exchange (CBOE) Volatility Index or VIX fell 9.7% to 34.61 after reaching an earlier high of 43.74 or a gain of 14.1%. U.S. consumer confidence rose for the 3rd straight month in May to the highest in more than 2 years. But that was countered by a report showing single-family home prices dropping in the 1st quarter on renewed price pressure as federal aid faded away.
This morning things are looking a little better as corporate earnings are strong (BMO exceeding expectations) and bargain hunting although the ‘era’ of instability will continue for some time.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
