A TSX tote board is pictured in Toronto.Frank Gunn/The Canadian Press
Canadian stocks fell in their first day of trading in August, as energy producers tumbled after crude prices dropped Monday into a bear market.
The S&P/TSX Composite Index fell 0.73 per cent, or 105.7 points, to 14,477.01 in Toronto, halting a two-day advance. The equity gauge rose 3.7 per cent in July, its best month since March. Equity markets were closed on Monday for a holiday.
Energy companies sank 2.7 per cent as a group as eight of 10 industries in the S&P/TSX retreated. Suncor Energy Inc. and Cenovus Energy Inc. fell more than 3.1 per cent to lead producers lower. Oil settled at the lowest level in almost four months, following a drop in U.S. stocks as global growth concerns resurface.
Royal Bank of Canada and Bank of Nova Scotia retreated at least 1 per cent to lead the nation's largest lenders lower. Canada is in the midst of one of its weakest expansions ever, with growth almost entirely dependent on bank lending and the hot Toronto and Vancouver housing markets, according to Statistics Canada data. Canada's gross domestic product contracted at the fastest pace in more than seven years, data showed Friday.
Valeant Pharmaceuticals International Inc. fell 4.6 per cent for a third day of losses, dropping to the lowest level in almost a month. The drugmaker is expected to lower its earnings forecast, according to analysts at Morgan Stanley.
The Canadian benchmark is hanging onto an 11-per-cent gain in 2016, rebounding from a slump last year that was the worst for the S&P/TSX since the 2008 financial crisis. The rally has made Canadian stocks more expensive than their U.S. peers, with a price-earnings ratio of 22.9 for the S&P/TSX, about 13 per cent higher than the S&P 500 Index.
Mining and energy stocks have propelled Canada to the second-best performance among developed markets this year, trailing only New Zealand fueled by a rally in commodities prices from gold and crude to base metals.
Investors turned risk averse, sending U.S. stocks to the biggest drop in a month amid a sell-off in equities from Japan to Europe as oil's plunge into a bear market rekindled global growth concerns. Treasuries erased losses, gold rose and the yen strengthened on haven demand.
The S&P 500 Index had its biggest drop since the aftermath of the Brexit vote, while the Dow Jones Industrial Average's losing streak hit seven, the longest in a year. Retailers tumbled as data showed U.S. consumers tapped into savings to increase spending last month, while automakers plunged on concerns the market may have peaked last year. European shares slid the most since July 6. The yen reached a three-week high versus the dollar after government's fiscal plan underwhelmed investors. Treasuries rose, while oil fell deeper into a bear market.
The four-week advance in global equities has faltered as crude's 22-per-cent rout since June rekindled concern about worldwide growth at the same time that European lenders have come under scrutiny over the strength of their balance sheets. U.S. data reinforced concern that the American consumer is losing power as wage gains remain sluggish. Central banks and governments around the world have countered with stimulus to shore up growth, though Japan's government spending package fell short of expectations.
"We have an economy that has improved a little bit with sentiment around the market in general, but the question is what will drive growth from here," said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. "Valuations aren't cheap, the economy is not growing rapidly and profits are at best stable, so the next driving factor is unknown right now."
The Dow Jones industrial average unofficially fell 90.6 points, or 0.49 per cent, to 18,313.91, the S&P 500 lost 13.79 points, or 0.64 per cent, to 2,157.05 and the Nasdaq Composite dropped 46.46 points, or 0.9 per cent, to 5,137.73.
"There really isn't reason to keep bidding the market higher right now," said Malcolm Polley, who oversees $1.3 billion as president and chief investment officer at Stewart Capital Advisors LLC in Indiana, Pa. "A pullback in the market is necessary just from a valuation standpoint. Our expectation for the year is we'll be flat-to-down in the equity markets."
At 18.3 times this year's projected earnings, the S&P 500 is trading near its highest multiple in more than a decade. Still, stronger-than-estimated earnings results and speculation that central banks will maintain loose monetary policies to buttress growth have helped to underpin equities as they hover near record levels.
Better-than-forecast earnings and economic data helped support the S&P 500's run to its first all-time high in more than 13 months, with the index rebounding as much as 8.7 per cent after the Brexit vote rattled markets worldwide. The rally lost steam last week, though, as a report showed weaker-than-expected growth in the second quarter. Manufacturing also expanded at a slower pace last month, according to data released on Monday.
Traders have pushed back their expectations for the next Federal Reserve interest-rate increase, with the first month with at least even odds for a hike now September 2017, compared with February a week ago. The Fed last week held rates unchanged as forecast but reiterated its intention to raise them gradually.
With investors looking for signs that growth is picking up, a report Tuesday showed consumer purchases climbed a bit more than anticipated in June, exceeding a gain in incomes that prompted American households to tap into savings. Data on employment, durable-goods orders and factory activity are due later this week.
Economic data gave a mixed picture for the outlook, with incomes rising a less-than-projected 0.2 per cent in June and consumer purchases climbing more than anticipated. Incomes rose a less-than-projected 0.2 per cent, while the saving rate declined to a more than one-year low.
The MSCI All-Country World Index fell 0.8 per cent, while the Stoxx Europe 600 Index lost 1.3 per cent. Commerzbank tumbled 9.2 per cent and UniCredit SA slid 7.2 per cent as Il Messaggero reported that the lender may consider a capital increase.
The MSCI Emerging Markets Index fell 0.6 per cent, with equity benchmarks in Abu Dhabi, Dubai, Russia and Saudi Arabia sliding more than 1 per cent.
Crude futures fell after rising as much as 2.1 per cent earlier in the day. Brent crude entered a bear market, joining the U.S. benchmark, which dropped into bear market territory Monday. U.S. stocks were down the most in a month amid a sell-off in global equities. While crude and gasoline inventories are forecast to have declined, they will remain at the highest seasonal level in at least two decades.
Oil has tumbled more than 20 percent from its peak in June, meeting the common definition of a bear market and halting a recovery that saw prices almost double from a 12-year low in February. The supply glut is upsetting industry expectations, with BP Plc, Royal Dutch Shell Plc and Exxon Mobil Corp. reporting second-quarter earnings last week that were worse than estimated.
"Equities are sliding so you definitely have a risk-off" situation, said Bob Yawger, director of the futures division of Mizuho Securities USA Inc. in New York. "We're sliding aggressively here despite the dollar being down."
West Texas Intermediate for September delivery declined 1.4 per cent to settle at $39.51 a barrel on the New York Mercantile Exchange, the lowest since April 7.
Brent for October settlement closed 34 cents lower at $41.80 a barrel on the London-based ICE Futures Europe exchange. The global benchmark settled at a premium of $1.50 to WTI for October.
Both WTI and Brent closed below the 200-day moving average for a second day in a row, which stood at $40.64 and $42.23, respectively.
"The market is weak due to poor fundamentals," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Fla. "It's follow-through from a key level being settled through yesterday."