U.S. stock markets opened sharply lower, with bargain hunters once again being left largely on the sidelines as an intensifying feeling of gloom permeates global trading desks. But energy stocks in Canada were seeing some buying interest, helping the TSX to outperform major U.S. indexes and even, at times, poke into the green.
Unlike Wednesday, when U.S. retail sales came in weaker-than-expected, today's economic reports were actually stronger than economists were anticipating. But that didn't seem to matter much, as traders still sold into the news, taking a glass-is-half-empty point of view as other key global economies - most significantly Europe and China - show signs of faltering.
Both the Dow and TSX were down by more than 100 points in the opening minutes of trading, but they quickly came off their lows. By 1030 a.m. (ET), the S&P/TSX composite index was up 36 points, or 0.2 per cent, at 13,906. The Dow was still down 123 points, or 0.7 per cent, at 16,018 and the S&P 500 was down 15 points, or 0.8 per cent, at 1,847.
The TSX gains were led by energy stocks, which have been pummelled this month amid the tumbling price of crude, even though the weaker Canadian dollar has helped to offset some of the negative impact on domestic oil and gas producers. The S&P/TSX capped energy index was down 1.1 per cent this morning. Materials, another weak sector of late, was down 0.3 per cent.
WTI crude oil remained under pressure today, sinking at one point this morning to below $80 (U.S.) a barrel for the first time since June 2012. At around 10 a.m. (ET), it was also off its lows of the day, with the November futures contract down 80 cents at $80.98 (U.S.) per barrel. European stocks are seeing their eighth day of losses, with credit yields in debt-stricken Greece sharply higher after a disappointing bond auction.
Further fuel is being added to the flames of worry with profit or revenue warnings out from Netflix, eBay and Philip Morris - as several third-quarter earnings reports from blue chips are being released in the U.S. Goldman Sachs beat earnings and revenue expectations, but its shares opened down around 2 per cent. Netflix shares plummeted 24 per cent after late Wednesday reporting third-quarter subscriber growth that missed the company's forecast.
In economic data this morning, U.S. initial jobless claims for last week fell to 264,000, less than the 290,000 that the market was expecting and the 287,000 in claims from the previous week. It was the lowest number of jobless claims since April 2000. Meanwhile, U.S. industrial production for September rose 1 per cent from August, beating the expectation of 0.4 per cent growth.
The economic outlook for the U.S. is critical at this juncture. As other key global economies - China and Europe in particular - show signs of slowing, corporate profit growth can only stay resilient if the American economy can keep growing. As the Fed soon reaches the end of its quantitative easing program, and starts to look ahead to a likely hike in interest rates next year, there's a renewed sense that the economy will have less juice from central banks to stand on. The earnings of S&P 500 companies are expected to grow 6.7 per cent in the third quarter, according to Thomson Reuters data through Wednesday, with revenue growth expected to come in at 4 per cent.
A number of Federal Reserve officials are speaking out today, with St. Louis Federal Reserve Bank President James Bullard grabbing the most attention so far by suggesting the Fed should consider delaying the end of its bond purchase program to halt the decline in inflation expectations. Speaking in an interview today with Bloomberg News, Mr. Bullard said U.S. economic fundamentals remain strong and he blamed the market turmoil on downgrades in the outlook for Europe.
Indeed, the flight to quality is continuing this morning, with U.S. 10-year Treasury prices rising for an eighth day, the longest winning streak in two years. The yield, which moves opposite to price, sank to 1.86 per cent on Wednesday, the lowest since May 2013 - and a level few market observers had expected at this point in 2014. One upside to sinking yields: the lower interest rates could help spur growth in some sectors of the economy, such as the U.S. housing market. The 30-year mortgage rate in the U.S. today slipped below 4 per cent.
The Toronto stock market is moving deeper into correction territory and is in danger of giving up all year-to-date gains. The index has lost 12 per cent since hitting record highs on September 3 with resource sectors absorbing most of the damage. The base metals and energy components have fallen about 20 per cent in the past month and the other major TSX pillar, the financials group, has fallen nine per cent.
U.S. indexes have so far avoided formally falling into correction, defined as a drop of 10 per cent from recent highs but that could change during the Thursday session.
Wednesday's losses left the Dow down seven per cent since September 19 while the S&P 500 has fallen 8.5 per cent. Both indexes had been at or close to record levels and a correction has been widely expected since there hadn't been a retracement in three years.
In earnings news, Goldman Sachs Group on Thursday reported third-quarter profit of US$2.24 billion or US$4.57 a share, handily beating expectations of US$3.21 a share. The investment bank posted revenue of US$8.39 billion in the period, exceeding forecasts of US$7.75 billion.
Toymaker Mattel, reported a profit of 97 cents per share on revenue of US$2.02 billion for the period Thursday. That was short of Wall Street expectations. Analysts had expected per-share earnings of US$1.02, and revenue of US$2.18 billion. Mattel reported that sales of its iconic Barbie doll fell 21 per cent during the quarter, even sharper than the 15 per cent drop in the second quarter. And American Girl's third-quarter sales declined seven per cent, compared with a six per cent rise in the second quarter.
Falling commodities helped push the Canadian dollar down 0.54 of a cent to 88.29 cents US, with the currency also under pressure as traders avoided riskier assets and continued to buy into the U.S. dollar. The dollar was also weakened by data showing that manufacturing shipments fell 3.3 per cent during August to $52.1 billion. Economists had expected a drop of 1.6 per cent.
With files from The Canadian Press