A specialist trader works at his post on the floor of the New York Stock Exchange Jan. 11.Brendan McDermid/Reuters
Energy's drag on Canadian stocks showed no signs of abating on Monday as the nation's benchmark equity gauge slumped a ninth consecutive day, the longest losing streak since 2002.
Canadian equities have lost 7.4 per cent during this period with the Standard & Poor's/TSX Composite Index failing to post a positive trading day in 2016.
Crude declined to a 12-year low, confirming the view of hedge funds that turned the least bullish since 2010.
Futures dropped 5.3 per cent in New York, adding to last week's 10-per-cent slide. Speculators' net-long position in West Texas Intermediate crude shrank 24 per cent in the week ended Jan. 5, U.S. Commodity Futures Trading Commission data show. Producer prices in China fell for a record 46th month, bolstering concern about the world's second-biggest economy. A rapid U.S. dollar gain may send Brent oil to as low as $20 a barrel, Morgan Stanley said.
"We want to see a sign that China has hit bottom and haven't gotten it yet," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. "I'm not convinced that Brent is likely to go to $20 because of the stronger dollar, but it's certainly a realistic possibility."
The S&P/TSX fell 1.01 per cent, or 126.2 points, to 12,319.25 in Toronto. The gauge capped a 20-per-cent plunge from its September 2014 record on Jan. 7, hitting a magnitude in declines commonly defined as a bear market. Canada was the second Group of 7 country to see its benchmark enter a bear market, after Germany's DAX Index did in August.
"Risk appetite will not return until we start to see crude carve out a bottom," said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., in a note to clients.
Energy producers sank 4 per cent. The group, which accounts for about 20 per cent of the broader index, was the worst-performing sector in the S&P/TSX last year.
Suncor Energy Inc. fell 4 per cent to its lowest since July, after extending its hostile offer for Canadian Oil Sands Ltd. Canadian Oil Sands was down 3.2 per cent. Suncor Chief Executive Officer Steve Williams said in a statement he was "encouraged" by the number of shares tendered to the deal.
The S&P/TSX Gold Index lost 3.2 per cent as the price of the metal swung between gains and losses after posting the best week since August. Gold producers had rallied at the start of the year as investors sought a haven from the market turmoil in China. Barrick Gold Corp. lost 2.7 per cent.
The materials group, which includes precious and base metals miners and fertilizer companies, lost 3.6 per cent as copper prices hit their lowest since 2009. First Quantum Minerals Ltd declined 9.4 per cent.
Standard & Poor's 500 Index closed little changed in whipsaw trading, after a late-afternoon rally paced by Apple Inc. and Intel Corp. offset a selloff in commodity shares driven by anxiety that China's slowdown will spread.
The Standard & Poor's 500 Index rose 0.1 per cent to 1,923.55 in New York, after falling as much as 1.1 per cent. The gauge surged 1.3 per cent in the final hour to erase a retreat after equities swung between gains and losses.
The Dow Jones industrial average rose 51.78 points, or 0.32 per cent, to 16,398.23, while the Nasdaq Composite dropped 5.64 points, or 0.12 per cent, to 4,637.99.
"China may become less of a burning issue as the scenario has played out, and as the country gives some indications of managing the economic situation," said Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2-billion. "As the attention moves away from China and towards earnings season, that could create a better tone for the market."
The new year has brought volatility, anxiety about global growth and losses for equity investors. The S&P 500 capped its steepest ever slide over five days to begin a year amid a worldwide rout sparked by worries that China's slowdown is worse than anticipated. Even data showing resilience in the U.S. labor market couldn't halt losses for the benchmark on Friday.
Alcoa Inc. unofficially kicks off the reporting season after markets close today. JPMorgan Chase & Co., Intel Corp. and Citigroup Inc. are among 11 companies scheduled to post quarterly results this week. Analysts estimate profits for S&P 500 members fell 6.7 per cent last quarter.
Earnings were key to keeping equities from caving after the sell-off in August when stocks suffered the first correction since the European sovereign debt crisis in 2011. While the S&P 500 ended down 0.7 per cent for 2015, a strategy of buying shares during the peaks of four earnings season would have returned about 11 per cent, according to data compiled by New York-based FBN Securities Inc.
One of the reasons stocks have done well is the propensity of companies to beat analyst predictions when they report results. The S&P 500 climbed an average 2.3 per cent over the month following Alcoa's announcements in 2015. That's about four times the normal rate of return for all reporting seasons in data going back to 1993.
"The U.S.'s economy is moving along at steady pace," said Chad Morganlander, a Florham Park, NJ.-based money manager at Stifel, Nicolaus & Co., which oversees about $170-billion. "External factors are applying pressure on earnings and revenue growth, so investors will be closely watching the companies that report this week."
The benchmark equity index's tumble to start 2016 has left it 9.7 per cent below its all-time high set in May after coming within 1 per cent of the record as recently as November. It is 3 per cent above the August bottom, retracing a rebound of as much as 13 per cent that peaked on Nov. 3.
Oil slumped last week as volatility in Chinese markets fuelled a rout in global equities and U.S. stockpiles remained more than 120 million barrels above the five-year average. Saudi Arabian Oil Co., the world's biggest crude exporter, confirmed on Jan. 8 it was studying options for a share sale, including listing "a bundle" of refining subsidiaries.
WTI for February delivery fell $1.75 to settle at $31.41 a barrel on the New York Mercantile Exchange. It's the lowest close since Dec. 5, 2003. Total volume traded was 47 per cent above the 100-day average.
Brent for February settlement decreased $2, or 6 per cent, to end the session at $31.55 on the London-based ICE Futures Europe exchange. It was the lowest close since April 2004. The European benchmark crude ended at a 14-cent premium to WTI.
Commodity producers led declines on the Standard & Poor's 500 Index. The S&P 500 Oil & Gas Exploration and Production Index dropped 5.1 per cent, led by Cabot Oil & Gas Corp. and Marathon Oil Corp. Freeport-McMoRan Inc., the top publicly traded copper producer, dropped 19 per cent, making it the worst performer on the S&P 500.
Speculators' net-long position in WTI declined by 23,863 contracts to 76,934 futures and options, the lowest since July 2010, CFTC data show.
"The hedge funds are saying that this isn't a good time to try and find a bottom in the oil market," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York
Crude also fell as the U.S. dollar climbed, diminishing the appeal of commodities denominated in the currency. The Bloomberg Commodity Index, a gauge of 22 raw materials slumped to the lowest level since 1999.
Oil is particularly leveraged to the dollar and may fall between 10 to 25 per cent if the currency gains 5 per cent, Morgan Stanley analysts including Adam Longson said in a research note dated Monday. Societe Generale SA cut its average 2016 Brent forecast to $42.50 a barrel from $53.75 in a report Monday, while Bank of America Corp. trimmed its forecast to $46 a barrel from $50.
"There are no technicals holding up the price so we're looking at a falling knife," said Jason Schenker, president of Prestige Economics LLC in Austin, Tex. "Concern about global economic sentiment and dollar strength are continuing to weigh on the market."