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It appears as though investors have made a brave call on commodities on Tuesday, sending oil and energy producers into the dustbin in favour of companies that have had a tough struggle in recent months. Could it be the start of a shift in the market?
Crude oil fell to $136.07 (U.S.) a barrel, down a convincing $5.30 and about $9 below its record high last week. The broader Reuters/Jefferies CRB index of 19 commodities slumped 2.4 per cent, after tumbling 2.8 per cent on Tuesday.
The commodity-heavy S&P/TSX composite index fell 103 points, or 0.8 per cent, to 13,610. Materials fell 2.5 per cent, with Potash Corp. of Saskatchewan Inc. falling 1.4 per cent and Teck Cominco Ltd. falling 6.5 per cent. The energy subindex fell 2.7 per cent, with Canadian Natural Resources Ltd. falling 4.2 per cent and EnCana Corp. falling 1.6 per cent.
Meanwhile, areas of the market that have been suffering from rising energy costs and concerns about an economic slowdown picked up. Industrials, dominated by railways, surged 2.2 per cent. And financials rose 1.3 per cent.
The shift looked similar in the United States, where the Dow Jones industrial average rose 22 points, to 11,254. The broader S&P 500 rose 1 point, to 1253.
Those aren't big moves, but the movement beneath the surface shows that something interesting is going on. Energy stocks and materials stocks were each down about 2.5 per cent, while beaten up financials rose 0.4 per cent. In particular, Bank of America Corp. rose 2.9 per cent.
General Electric Co., which is expected to report its second-quarter results on Friday, rose 3.1 per cent, Pfizer Inc. rose 2.9 per cent and Wal-Mart Stores Inc. rose 2 per cent.
Of course, commodities have made similar retreats recently, only to storm higher. This time, the retreat is being blamed by some observers on the slowing global economy and a speculative fervour, which can send investors scurrying away from expensive commodity producers at the slightest sign of weakness. In the past, this has been an ideal time to scoop up energy stocks.
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