Canadian stock markets dropped Friday before the long-weekend as the United States registered no job growth in the month of August, which increased investor worries about whether the U.S. can avoid slipping back into another recession. Things were further compounded as previously reported job data for June and July were also revised lower and the unemployment rate stayed at 9.1%.
The S&P/TSX composite index fell 98.33 points or 0.77% to 12,602.41, with losses limited by a strong gain in the gold sector as investors fled to safe havens such as bullion.
If the U.S. economy doesn’t start to contract again, any expansion is going to be very modest and fall short of what would be needed to push the unemployment rate lower.
The TSX gained 274.9 points or 2.2% on the week as gold stocks rose alongside bullion prices. Financials also advanced in the wake of a string of positive earnings reports from the big banks in Canada.
In the United States, stocks dropped 2% on Friday after data showing zero jobs growth in August brought investors closer to the reality of another recession. The declines left Wall Street lower for the 6th week out of 7.
Stocks had rebounded recently on expectations the Federal Reserve would introduce new stimulus to boost the sluggish economy. However, the U.S. Labor Department’s latest report underscores that action by the Fed alone cannot address the economy’s deep problems.
Bank stocks were again among the day’s biggest losers, with Bank of America (BofA) dropping 8.3%, making it the top decliner on the Dow, where all 30 components fell. The KBW banks index lost 4.5%.
U.S. President Barack Obama, in a speech set for Thursday, will unveil a jobs program he hopes will provide “meaningful” tax relief and help the nation’s long-term unemployed.
The likelihood of more stimulus has increased dramatically as a result of this data and some other recent data, but at this point it’s unclear how much that will really help stock markets.
The Dow Jones industrial average was down 253.16 points, or 2.20%, at 11,240.41, the Standard & Poor’s 500 Index was down 30.46 points, or 2.53%, at 1,173.96 and the Nasdaq Composite Index was down 65.71 points, or 2.58%, at 2,480.33.
Friday marked the S&P’s biggest drop in 2 weeks. Stocks were only modestly lower for the week, after a rally at the start of the week, for the week, the Dow fell 0.4%, the S&P lost 0.2%, and the Nasdaq was flat.
Energy shares dropped as U.S. crude futures fell 2.5% on concerns economic weakness could curb fuel demand.
On the weekend there was more action in turn, this morning U.S. stock futures are likely going to open lower by about 1%. Investors returning from the long weekend will face more European debt turmoil and the lingering disappointment over last week’s jobs data.
The Swiss franc tumbled against the euro and other major rivals after the Swiss National Bank took the extraordinary step of setting a floor for the euro/Swiss franc exchange rate. The Swiss franc has been a safe haven for investors seeking shelter from worries over global growth and the European debt crisis. But the strong currency has wreaked havoc for many Swiss companies as their exports have grown more and more expensive.
Each euro-zone country rescue launched over the past couple of years has been less convincing.
The Stoxx Europe 600 index rose 0.3% this morning after dropping 4.1% yesterday. Monday’s fall was the biggest 1-day percentage decline since August 18th amid worries over Europe’s sovereign-debt crisis and concerns that growth in the U.S. is stalling.
Worries over the sovereign-debt crisis were aggravated after a weekend loss by German Chancellor Angela Merkel’s Christian Democratic Union in regional elections in her home state.
It is widely thought that the crisis in Europe will claim many of the current euro-zone governments upon reelection, leaving in their place administrations or newly elected officials that are even more opposed to giving financial aid to the more at-risk nations, and the creation of euro bonds, the only measure that some think will save the euro. In short, things are not pretty in Europe.
Italy contributed to worries, with the government under pressure to implement austerity measures, as the country braced for a general strike today protesting those very reforms. Bonds yields have been rising for both Spain and Italy.
In the United States this morning, the Institute for Supply Management, will release its index of activity for the U.S. services sector. That’s expected to show a slowdown, but not outright contraction, in the rate of growth for non-manufacturing firms.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
