MARK BLINCH
The celebrations marking the second anniversary of the bull market have turned decidedly negative recently: On Thursday, North American stocks were hit again, with Canada's benchmark index in particular on track to post its worst one-day dip since last August.
In mid-afternoon trading, stocks were off their intraday lows, but still nursing big losses. The Dow Jones industrial average was down 205 points or 1.7 per cent, at 12,007. The broader S&P 500 was down 21 points or 1.6 per cent, to 1298. In Canada, the S&P/TSX composite index was down 184 points or 1.3 per cent, to 13,701. In earlier trading the TSX had been off more than 300 points.
Although Thursday has been the worst setback for major indexes in some time, the trend has been down throughout the week. In the case of the TSX, the losing streak is now four days old, during which the index has fallen a total of around 4 per cent.
The declines in both Canada and the United States are widespread. In the case of the Dow, just one stock among the 30 members is higher: That would be McDonald's Corp., up 0.7 per cent.
However, commodity producers have taken by far the worst thumping after prices for crude oil and gold fell sharply. Oil fell to $102.03 (U.S.) a barrel, down $2.35, just days after many observers worried about the impact that rising oil prices would have on economic growth and inflation. Gold fell to $1412.80 an ounce, down $16.80 - suggesting that on a day like today, investors are preferring the safe haven qualities of the U.S. dollar, which rose.
Since the start of the week, Canadian materials stocks have fallen a total of 7.3 per cent, making them the worst performers among the 10 subindexes within the S&P/TSX composite index. Energy stocks have fallen 7 per cent, good enough for second place.
Of course, the big question is why stocks have turned tail so soon after a steady stream of upbeat U.S. economic news sent them to post-recovery highs. According to Bespoke Investment Group, Wall Street strategists have proven themselves remarkably adept at raising their targets for the S&P 500 to keep up with the index's recent gains: The average year-end target among strategists is now 1401, versus a target of 1371 at the start of the year, suggesting that they are cranking up the bullishness.
This overwhelming optimism about stocks could be partly to blame for the setbacks, making them highly susceptible to disappointing news.
On Thursday, there was no shortage of disappointment. U.S. initial jobless claims for the period ended last week rose more than expected, dashing hopes that the unemployment situation was on a path of steady improvement. As well, the U.S. trade deficit widened by 15 per cent in January, to its highest level in seven months, putting a damper of economic growth in the first quarter.
"January's trade figures are harbingers for what will likely be the broad external trade story this year. Stronger consumer spending and business investments will likely lead to higher imports, putting upward pressure on the U.S. trade deficit throughout 2011," said Martin Schwerdtfeger, an economist at TD Securities, in a note.
And in China, export growth slowed in February, raising concerns that its economy is slowing to the point where global economic growth could be affected. And fresh jitters over Europe's debt crisis added to concerns.
David Berman