North American stock markets sink amid falling crude prices and spreading virus
Financial numbers flow on the digital ticker tape at the TMX Group in Toronto's financial district on May 9, 2014. THE CANADIAN PRESS/Darren Calabrese
Ross Marowits, The Canadian Press
Published Monday, March 16, 2020 9:43AM EDT
Last Updated Monday, March 16, 2020 7:06PM EDT
TORONTO - Canada's main stock index hit a 52-week low Monday amid heightened volatility caused by a steep drop in crude oil prices and investor angst over the spread of COVID-19.
The amount of market volatility is unprecedented, says Michael Currie, vice-president and investment adviser at TD Wealth.
“Thousand-point moves are just becoming the norm now,” he said in an interview. “A 500-, 600-point move nobody even flinches anymore and those used to be massive days.
Trading on the S&P/TSX composite index was temporarily halted for the third time in the past week after an early 11 per cent drop or more than 1,800 points triggered a circuit-breaker.
It partially recovered to close down almost 10 per cent or 1,355.93 points at 12,360.40.
In New York, the Dow Jones industrial average had its worst day since 1987 by losing 2,997.10 points or 12.9 per cent at 20,188.52. The S&P 500 index was down 324.89 points at 2,386.13, while the Nasdaq composite was down 970.28 points at 6,904.59.
The markets fell despite the Federal Reserve over the weekend joining the Bank of Canada in again cutting interest rates, which should have been supportive.
“This is still a market that is pricing in not just a garden variety recession but the possibility of something worse,” said Frances Donald, global chief economist and head of macro strategy for Manulife Investment Management.
That could include protracted weak economic activity that looks like a credit crisis if defaults start to rise.
“We have so little visibility into what the economy will look like next and let's remember the stock market is trying to get a sense of what earnings will look like,” she said in an interview.
The shape of earnings won't be known until novel coronavirus cases start to slow.
In the meantime, the TSX is down about 31 per cent from its Feb. 20 high while the S&P 500 is down 30 per cent and the Dow nearly 32 per cent.
The Canadian dollar traded for 71.61 cents US compared with an average of 71.94 cents US on Friday.
The loonie fell to a four-year low as investors increasingly seek shelter in the U.S. dollar and the Japanese yen. They're concerned about the economic impact of COVID-19, policy responses in Western Europe and the spread of events, restaurants and stores shutting down in North America, said Tom Nakamura, vice-president and portfolio manager, currency strategy at AGF Investments Inc.
“There's also market concern about the Canadian economy and whether we have enough policy tools and we have enough fiscal space to be able to combat these kind of dual shocks to our system,” he said.
He added that the Canadian dollar could still shed some more value until there's signs that the virus cases have peaked.
Materials was the lone of the TSX's 11 major sectors to gain ground in a broad-based selloff. The sector was up 2.3 per cent as Alamos Gold Inc. gained 20.8 per cent and Kinross Gold was up 17.3 per cent, despite another drop in gold prices.
The April gold contract was down US$30.20 at US$1,486.50 an ounce and the May copper contract was down 7.15 cents at US$2.39 a pound. Silver prices hit their lowest level in a decade.
Gold is traditionally seen as a safe haven but it fell as investors faced forced liquidations, short coverings or looked for anything in their portfolios with a profit to sell and raise cash.
“Gold is doing badly because it's done so well,” Currie said.
Energy was the big loser. The key sector lost more than 18 per cent as crude oil prices dropped to their lowest level in four years. Canadian Natural Resources was down 27.2 per cent.
The April crude contract was down US$3.03 at US$28.70 per barrel and the April natural gas contract was down 5.4 cents at US$1.815 per mmBTU.
Crude is dropping on reducing demand as businesses close and travel is brought almost to a standstill, while supply is potentially increasing because of a price war between Saudi Arabia and Russia.
“So just about everything that could go wrong with energy right now is,” said Currie, adding the only bright spot was the U.S. saying it will top up its strategic oil reserves.
The heavyweight financials sector lost more than 10 per cent with Manulife Financial down 17.9 per cent and National Bank of Canada 16.8 per cent lower.
Other companies getting hit were mall food court operator MTY Group Inc. down 36.3 per cent and BlackBerry Inc. shares dropping nearly 21 per cent.
Air Canada dropped more than 28 per cent amid a dramatic cut in its capacity as the federal government closed the border to most visitors.
This report by The Canadian Press was first published March 16, 2020.