Canada’s main stock index ended lower in volatile trading yesterday as energy and financial shares dropped on economic uncertainty and offset gains by surging gold issues. Markets continue to fret about the uncertainty in Europe. With ongoing fears about euro zone debt contagion causing investors to flee to safe-haven assets, gold rallied to less than $10 below its all-time high.
The Toronto Stock Exchange’s S&P/TSX composite index closed down 0.56%.
In the United States stocks fell, taking the S&P 500 to its lowest close in 7 months, as industrials and technology shares fell and investors stayed on their heels after last week’s payrolls figure discouraged buyers from entering the stock market. The Nasdaq led declines as investors sold large cap technology as Research in Motion Ltd (RIM) fell on worries about the BlackBerry’s sales and after the introduction of Apple’s latest iPhone although, Apple also fell.
The S&P 500 is down 13.7% from its April 23rd closing high for the year, firmly in correction territory. The benchmark index breached a key technical support level around 1,060 late in the afternoon.
On Friday, the major U.S. stock indexes slid more than 3% after the weaker-than-expected May non-farm payrolls report and as worries increased over the sovereign debt crisis in some European countries, the latest being Hungary.
The Dow Jones industrial average fell 1.16%, the Standard & Poor’s 500 Index fell 1.35% and the Nasdaq Composite Index fell 2.04%. The stock market has been sensitive to recent news or headlines, particularly out of Europe, and that has prompted some abrupt intraday swings in the S&P 500. The CBOE Volatility Index VIX, remains at an elevated level, though it has eased back since May.
After the market closed Federal Reserve Chairman Ben S. Bernanke said the U.S. recovery probably won’t quickly bring down the unemployment rate, which is likely to stay “high for a while.” Given the depth of the recession, the recovery is “moderate paced,” Bernanke said during a question-and-answer session on ABC News. In Europe, policy makers “are committed to avoiding default in Greece” and elsewhere, he said.
While the Fed will raise interest rates from a record low before the economy returns to “full employment,” Bernanke said officials don’t know when the process will start. The banking system isn’t fully healthy and lenders are “cautious” in providing credit, he said. “The unemployment rate is still going to be high for a while, and that means that a lot of people are going to be under financial stress,” Bernanke said.
Bernanke and his colleagues will give updated economic projections when they next meet in Washington June 22-23. The Fed chief reiterated today that the central bank’s “extended period” of a record low interbank lending rate is conditioned on high unemployment, low inflation and stable price expectations. “We have right now a very accommodative, very easy monetary policy,” Bernanke said. “We can’t wait until unemployment is where we’d like it to be” or inflation gets “out of control” to tighten credit, he said.
This morning North American stock futures are up, commodity prices have rebounded a little and European shares have paired their losses based on the Bernanke comments. I would expect to see some hesitant bargain hunting but it will take time for the stock market to identify a key catalyst to push things higher with above average volumes.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
