Changing markets for a month and a half show significant discomfort on Canadian stock exchanges compared to its US counterpart. And this situation is not likely to subside soon, according to some experts.
Between 20 September and mid-October, all budgets have declined rapidly. The S&P / TSX index of the Toronto Stock Exchange corrected by 11.5% while the S&P 500 index of the New York Stock Exchange lost 8%. Over the past 12 trading sessions, New York has regained all, but for Toronto the recovery has been more difficult. After losing 1,800 points during the correction, the S&P / TSX Composite Index returned only in 800.
“The spark of the relative weakness for the Canadian stock market candle was certainly the fall of oil prices, which rose from US $115 a barrel this summer to less than $80 today. Saudi Arabia has poured oil on the fire by cutting the price of its oil sold in the United States,” says Luc R. Fournier, portfolio manager at Industrial Alliance.
This complicates the lives of managers of Canadian equity portfolios because such a price drop over such a short time, is certainly unusual, if not abnormal, according to Fournier. “Oil is a global convenience, and price should not behave like a penny stock,” he said.
We know the importance of resources and raw materials, including gold and copper, which in the composition of Canada’s leading stock index is more than 30%. “And the appetite for these sectors is generally the opposite of the evolution of the US dollar, which is now clearly on the rise,” says the manager. The relative strength of the US economy compared to the European economic and difficulties faced by emerging economies to maintain their growth are the reasons to spur demand for the US dollar.
To some technical analysts, the damage done to the graph of the Canadian stock market is serious. During the market retreat between 20 September and mid-October, both the S&P 500 as the S&P / TSX Composite Index fell below their moving averages, first in 50 days and then in 200 days. For technical analysts, the 200-day average reflects the long-term trend, whereas 50 days shows the trend over the short term.
The recovery in recent weeks has allowed the S&P 500 come back above its 200-day average and then regain the 50 days, says Ron Meisels, president of Phases & Cycles, and specialist in technical analysis. For the S&P / TSX Composite Index, the story is quite different. The index is still below its moving averages.
“The US stock market has risen too quickly and must therefore undergo certain corrections right now. But then regain its upward trend,” believes Ron Meisels. This should help the Canadian stock market eventually, but it will take some time, he added.