Spooked investors push North American stock markets to worst week since March

TORONTO — Canada's main stock index endured its worst week since large corrections in March as investors got spooked by ongoing concerns about rising COVID-19 infection rates.

The S&P/TSX composite index closed on Halloween eve down 90.06 points to 15,580.64 after hitting an intraday low of 15,418.46.

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The week ended off 4.4 per cent from the prior Friday in the largest weekly decrease since a 13.6-per-cent drop on March 20.

It was also 7.2 per cent below the late August high after markets enjoyed a rally.

October ended down 3.3 per cent in addition to a 2.4-per cent decline in September. That follows several strong months since the TSX dropped 17.7 per cent in March.

Similar moves were seen In New York, where the Dow Jones industrial average fell 157.51 points to 26,501.60. The S&P 500 index was down 40.15 points at 3,269.96, while the Nasdaq composite was down 274.00 points at 10,911.59.

Recent market declines were the result of the pandemic, politics and corporate profits, says Philip Petursson, chief investment strategist at Manulife Investment Management.

The most significant of these influences is the COVID-19 pandemic because of increased global infections and new economic lockdowns in France and Germany.

Uncertainty over Tuesday's U.S. election has also been a contributing factor as it has historically been a trigger for volatility, he said.

"So there's a lot of uncertainty out there that continues to create volatility," Petursson said in an interview.

Corporate earnings in the third quarter have exceeded expectations, reinforcing Manulife's forecast for profits to recover to 2019 levels by the end of 2021.

Nonetheless, the technology sector was weak Friday with several large technology companies — including Apple, Facebook, Amazon and Twitter — sustaining share losses after reporting quarterly results amid ongoing concerns about high valuations.

Shares of Shopify Inc. lost 5.3 per cent to push Canada's tech sector down 2.1 per cent a day after being rewarded for spectacular quarterly results.

"I don't necessarily think it's anything that the company has done. It's more that Shopify is kind of being dragged down with the entire tech sector in the United States, so it's a victim of circumstances," said Petursson.

Nine of the 11 major sectors of the TSX were down, led by utilities and technology. Industrials was down on a 9.8 per cent decrease of SNC-Lavalin after posting a $85.1-million loss in the third quarter.

The heavyweight financials sector was down slightly as banks are benefiting from a steeper bond yield curve that is good for their profitability.

Materials rose 1.5 per cent on higher prices for precious metals on worries about higher inflation, Petursson said.

"What I think is carrying gold today is perhaps a little bit more risk-off, and the same thing that's pushing yields up higher is this realization of higher inflation."

The December gold contract was up US$11.90 at US$1,879.90 an ounce and the December copper contract was down nearly one cent at almost US$3.05 a pound.

Energy was up nearly one percentage point despite weaker crude oil prices, with MEG Energy Corp. and Imperial Oil up seven and 6.4 per cent respectively.

"Energy probably bore the brunt of the decline in oil prices earlier in the week," explained Petursson.

The December crude contract was down 38 cents at US$35.79 per barrel and the December natural gas contract was up 5.3 cents at US$3.35 per mmBTU.

The Canadian dollar traded for75.09cents US compared with 74.91 cents US on Thursday.

While market volatility is likely to persist, especially if the election is contested by President Donald Trump, there are signs of a strong end to the year, said Petursson.

The VIX volatility index hit a 20-week high this week by reaching 40. Dating back to 1990, that means the six-months forward return is positive 85 per cent of the time with the average return of 17 per cent, he said.

"So we would say the volatility that we've seen this week, it represents a good opportunity to add to equities."

Furthermore, while September and October are historically weak in election years, the last two months tend to recover strongly.

"I believe that the volatility can continue until the election is confirmed but historically November and December are two of the strongest months of the year."

This report by The Canadian Press was first published Oct. 30, 2020.

Companies in this story: (TSX:MEG, TSX:IMO, TSX:SHOP, TSX:SNC, TSX:GSPTSE, TSX:CADUSD=X)

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