Canada’s main stock index closed down almost 200 points on Tuesday as the price of crude oil slumped and losses widened in the energy and base metals sectors.
It was the first day of trading in the US after the July 4 holiday and on both sides of the border, things quickly got off to an “ugly start,” said Greg Taylor, chief investment officer at Purpose Investments.
By late morning, the S&P/TSX index had fallen more than 400 points, though it rallied later to close at 18,834.16, down 194.70 from the previous day’s close.
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US markets also fell after the opening bell, but the S&P 500 Index managed to gain by the end of the day, closing up 6.06 points at 3,831.39, while the Nasdaq Composite closed lower. a rise of 194.39 points to end the day in positive territory at 11,322.24.
The Dow Jones Industrial Average closed down 129.44 points at 30,967.82.
While it’s true that some of the morning’s losses were recovered later in the day, Taylor said, Tuesday’s sell-off still indicates that for many investors, “the recession is here.”
“It seems like everyone came in this morning completely in a panic about the recession,” he said. “The narrative throughout the year has gone back and forth between inflation fears and recession fears, and today feels like the day recession fears really took hold.”
Bond yields fell, an indication of risk-off sentiment, and the Canadian dollar fell more than a penny amid growing concerns about the economic outlook around the world, particularly in the European Union, where a rise in Natural gas prices have added fuel to the recession. fears
The euro fell to its lowest level in two decades on Tuesday, while the Canadian dollar traded at 76.70 cents on the US dollar compared to 77.72 cents on Monday.
In Canada, the same energy and commodity stocks that rose in recent months when inflation was the main concern tumbled Tuesday on fears the recession will dampen demand.
“Given the severity of the sell-off earlier this year, the only sector that was working was energy. So a lot of funds and momentum managers were hiding in energy stocks, and now we had to see a rapid turnaround of people without energy trying to get it back into tech or something,” Taylor said.
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The TSX Capped Energy Index closed down 6.8 percent, while the Capped Materials Index closed down 4.4 percent.
The August crude contract fell US$8.93 to US$99.50 a barrel and the August natural gas contract fell 21 cents to US$5.52 per mmBTU. The August gold contract fell US$37.60 to US$1,763.90 an ounce and the September copper contract fell 19 cents to US$3.42 a pound.
Against the backdrop of falling commodity prices, Canadian oil and gas stocks suffered heavy losses on Tuesday. Athabasca Oil Corp. closed with a loss of more than 13 percent, while Precision Drilling Corp. was down more than 12 percent and MEG Energy Corp. closed with a loss of more than 10 percent.
But Taylor said that despite Tuesday’s eight percent drop in oil prices and the hit to stock prices, investors should not forget that the Canadian oil and gas sector remains incredibly profitable right now. .
“At the end of the day, these companies are still incredibly positive from a cash flow standpoint. At $100 worth of oil, it’s still a big win for them. They were set to work at $50 or $60,” Taylor said.
Even as recession fears haunt markets, Taylor said investors still expect the Bank of Canada to announce another 75 basis point interest rate hike in its policy decision next week. The biggest question at the moment is whether the central bank will ease after that or continue with additional rate hikes.
For that reason, Taylor said everyone will be keeping an eye on the latest US inflation data, which is expected to be released on the same day as the Bank of Canada’s next rate announcement. Investors will be watching to see if US inflation has peaked, which may be a signal for central banks on both sides of the border to backtrack on interest rate hikes.
Investors are also keeping an eye on the latest jobs data from Canada, expected on Friday, as well as second-quarter corporate earnings releases due later this month.
“From a stock standpoint, the next big thing is going to be earnings. We’re a few weeks away from that, but that’s going to be a concern — to see how these companies hold up,” Taylor said.
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