If you own plenty of Canadian stocks, you might feel a bit queasy right now. The benchmark index is on a four-day losing streak and has tumbled 3.4 per cent in September.
The worst part: There is probably more pain to come.
The S&P/TSX composite index closed at 15,120.54, down 5.13 points, on Wednesday and was down more than 100 points earlier in the trading session. The longer-term trend is more alarming: 537 points have been shed over 15 trading days.
The downturn wouldn't be a big issue if U.S. stocks were suffering a similar fate, but that's not the case. The S&P 500 jumped more than 15 points or 0.8 per cent on Wednesday, and is now less than 1 per cent below its record high.
Making matters even more demoralizing, the Canadian dollar is sinking against the U.S. dollar, briefly dipping below 90 cents (U.S.) on Wednesday, making U.S. investments look that much better in comparison.
The biggest distinction between the two markets is commodities. Energy and materials stocks represent nearly half of the S&P/TSX composite index, in terms of their combined weightings, and they've been the weakest sectors by far.
Canadian energy stocks have fallen 6.2 per cent since the benchmark index hit a record high on Sept. 3. Materials stocks have fallen 8 per cent over the same period.
The stocks look helpless next to some powerful forces well beyond Canada's borders.
China's insatiable appetite for commodities has reached its limit. Companies are no longer stockpiling things like steel and copper as the economy faces ongoing challenges.
Last week, China's central bank injected the equivalent of $80-billion into top banks, in an attempt to address broader concerns about slowing economic growth, a weaker housing market and a sharp drop in factory output.
At the same time, the euro zone's economy is perilously close to slipping back into recession and Japan's economy contracted 7.1 per cent in the second quarter, at an annualized pace. Even the Bank of Canada is warning that our economic growth will average less than 2 per cent over the next two years, which is anemic.
Conversely, the U.S. economy is looking relatively healthy next to the rest of the world, increasing the odds that the Federal Reserve will raise its key interest rate next year.
The outlook for higher rates is lifting the U.S. dollar, which tends to drive down commodities priced in greenbacks.
Copper, iron ore and metallurgical coal prices are reflecting these ongoing shifts. Crude oil has fallen more than $4 a barrel in September, and is down nearly 15 per cent since July. Gold is close to its lowest level of the year after sliding about $70 an ounce this month.
It is hard to see things improving any time soon, given the cloudy economic outlook, a general oversupply in commodities and a powerful trend toward lower commodity prices.
"My fundamental view is that commodities got overhyped and overloved over the 2004-2011 period and we're going through a long period of mean reversion," said Mark Dow, founder of Dow Global Advisors, in a blog post.
"Simple money management only gives you two choices here: Be short, or get the hell out of the way."
There are few indications that the S&P/TSX composite index can find much strength beyond commodity producers.
Banks will have to overcome high levels of consumer debt and a bubbly housing market. Railways have seen share prices rise far faster than earnings, making valuations look absurdly high for old industrial stocks. And telecom stocks are seeing earnings rise slowly in a mature market.
The rough patch for Canadian stocks follows what had been a promising start to the year. The S&P/TSX composite index fully recovered from the bear market of 2008 and 2009, embarking upon a series of new highs throughout the summer as it led major global indexes in gains.
Now, the index is back to three-month lows.
But at least it has company. Other major indexes tied to commodities are also struggling. Australia's benchmark index has fallen 5 per cent and Brazil's is down 8 per cent.