After months of exuberant gains, stock markets are suddenly sobering up to a world of worries.
A tide of bad news from around the globe - ranging from an unexpected Chinese trade deficit to reports of police in Saudi Arabia firing on demonstrators - simultaneously dragged down stocks, oil, and gold on Thursday, while sending money pouring into the traditional havens of the U.S. dollar and government bonds.
The plunge in equities was particularly severe in Toronto's commodity-laden stock market, where shares sagged more than 305 points at their worst, but closed off their lows at 13,638, down 246 points or 1.8 per cent. It was the fourth decline in a row, a drop that has dragged the TSX composite down by 5 per cent.
Shares also tanked in New York, where the blue chip Dow Jones industrial average posted a triple-digit decline, falling 228 points to 11,984. Oil was trading $1.68 (U.S.) lower to $102.70 a barrel in late day trade while gold was off $17.10 to $1,412.50 an ounce, on fears that the global recovery may be slowing down.
Adding to the nervous tone were worse-than-expected jobless claims and trade deficit figures in the U.S., as well as the decision by credit rating agency Moody's to downgrade Spanish government debt, a reminder to investors that Europe's sovereign debt problems remain far from over.
Reports out of Saudi Arabia that police fired on hundreds of protesters in the eastern town of Qatif, in one of the kingdom's oil-rich regions, also rattled investors, because it raised the prospect of far wider instability in the Middle East. Oil pared its losses in late afternoon trading after news of the protests reached the market.
Despite the severity of the market declines, many analysts are leaning toward the view that the drop is a healthy correction, given that stocks have barely paused for breath since late August when U.S. Federal Reserve chief Ben Bernanke said he would stimulate the world's largest economy by a further loosening of monetary policy.
"By and large our view is the market will sawtooth its way higher and this is one of those saw teeth on the downside," says Irwin Michael, president of I.A. Michael Investment Counsel, a Toronto-based mutual fund manager.
Mr. Michael says he considers the decline a temporary setback in a bull market. He's been using the downdraft to bargain hunt for shares, contending that corporate earnings remain strong and the economy is strengthening, factors that will eventually propel stocks higher.
"We've been nibbling a few things today," Mr. Michael said. "If you fancy yourself a contrarian, you like to buy on down days and correspondingly, you like to sell when things are hot and heavy on the upside."
David Baskin, president of Baskin Financial Services Inc., also views the sell-off as a buying opportunity and has been selectively purchasing shares. "We're overdue for a correction. We really haven't had a significant pullback in the market since May or June," he said.
No New Bear Market
Prompting much of the decline early in the trading session was the report from China of a surprise trade deficit in February, raising fears that its economy is slowing. But analysts cautioned against reading too much into the figure because the trade results were distorted by China's lunar New Year. Still, Mr. Baskin said the figure "spooked the market."
He believes a new bear market is unlikely, given that corporate profits are growing strongly, allowing many companies to raise dividends. "We're pretty sanguine about the market," he said.
Also in the correction camp is Bob Gorman, chief strategist at brokerage TD Waterhouse, who said that investor sentiment had been overly positive, and was due for a reversal.
"I would say you need restoration of what I would call healthy fear and I think we're getting a little of that," said Mr. Gorman, who added the market's turn for the worse "is not a bad thing" because it lays the groundwork for further advances.
Mr. Gorman believes stocks will recover and end the year moderately higher from their current levels, with gains of about 10 per cent in the United States and slightly less in Canada.