On Friday resource stocks led declines on the Canadian stock market as investors ended the 3rd quarter in a pessimistic mood about the pace of economic recovery and the outcome of the European debt crisis. The S&P /TSX composite index dropped 62.48 points or 0.53% to end at 11,623.84 with losses held in check by rising gold stocks. It has been a difficult 3rd quarter as the majority of stock markets dropped about 15% and many are officially in “bear market” territory, the Canadian market was down 12.6% for the quarter and 19% from its most recent peak.
Investors worry that the global economy is slipping into recession, which would reduce demand for oil, copper and other commodities that Canada produces. That would weaken exports and profits and further depress share prices on the resource heavy TSX.
Stocks have sold off because of the eurozone debt challenges and the political gridlock in the United States, which threatened to undermine global economic growth. However, China’s economy which has been of vital importance to global economic growth recently and commodity markets also appears to be slowing down.
The European debt crisis has weighed heavily on capital markets recently over fears that Greece is on the brink of a default. That could send shock waves through the global economy, particularly in Europe, and wreak havoc on the continent’s banking sector which holds a lot of Greek assets/bonds. As the Greek economy gets worse it makes hitting their financial targets harder and further compounds their issues.
In the United States stocks ended their worst quarter since the depths of the 2008 credit crisis also hit by Europe’s debt debacle, a U.S. credit downgrade and a sluggish global economy. A steep slide on Friday closed out a 5th month of losses as weak economic data from China sparked fears of a global economic slowdown while investment bank Morgan Stanley dropped by more than 10% on concerns about its exposure to European banks.
The S&P 500 index has lost more than 14% this quarter and over 7% in September alone. As of Thursday, Wall Street’s deep downturn in the 3rd quarter wiped out $2.2 trillion in equity value. Stocks have been battered by the threat of a slowdown and fears that a Greek debt default could spark a credit shock similar to that caused by Lehman Brothers in September 2008, sending markets into a tailspin.
Fears of a hard landing in the world’s 2nd largest economy joined the potent mix troubling investors after China’s manufacturing sector shrank for the 3rd month in a row.
The Dow Jones industrial average dropped 240.60 points, or 2.16%, to 10,913.38, the Standard & Poor’s 500 Index fell 28.98 points, or 2.50%, to 1,131.42 and the Nasdaq Composite Index lost 65.36 points, or 2.63%, to 2,415.40.
Wall Street’s “fear gauge,” the Chicago Board of Options Exchange volatility index, or VIX, rose more than 10% to 42.96, its highest close since mid-August and indicating investors expect more volatility ahead.
The MSCI All Country World Index had lost about $4.7 trillion in market value.
This morning stock index futures were modestly lower as concerns over Greece’s teetering finances. Draft budget figures showed Greece would miss its deficit targets for both this year and next, which could force the country to seek more bailout funds. If it fails to get the financing, the government may be forced to default, an outcome that could accelerate a slide back into global recession.
While it appears that they will get additional help if needed (part of the poker game), there remains a lot of uncertainty over how much more money could be provided as well as the framework. North America stock futures are pointing down about 0.40%.
Today investors will attempt to look ahead to September data on manufacturing from the Institute for Supply Management (ISM), seen coming in at 50.5, versus 50.6 last month. The data is due at 10 a.m.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
