The TSX (S&P/TSX composite index) lost 263.26 points, down 1.78 percent at 14,540. All of the 10 major groups were down. For the week, the TSX lost 1.7 percent. Higher bond yields put pressure on stocks as the EU Central Bank decided not to use more monetary stimulus to attempt to revive the economy. In the U.S. there were hints that the Federal Reserve might hike interest rates. Matt Skipp, president of SW8 Asset Management said that because central banks were not using more monetary stimulus, liquidity in global markets had been reduced, and volatility increase. The decline in the TSX came even as the jobs picture improved with 26,200 jobs being added in August. North Korea carried out its fifth and largest nuclear test, which may have also increased investors aversion to taking risks in the market.
The materials group which includes both precious and base metals declined by 3.6 percent. The energy sector also dropped three percent. Oil too was down by $1.74 (US) a barrel at $45.88. The industrial sector was down 2.6 percent. Financials were down only slight at 0.4 percent with Manulife actually gaining 1.6 percent.
U.S. stocks also suffered their worst week since February. The S&P fell 2.3 percent to 2,127.81 for the week after it had gained the first three days of the week. The S&P fell below its 50-day moving average for the first time since June. The CBO Volatility Index measuring price turbulence was above 17 for the first time in 50 sessions of the exchange.
Market bears have long been predicting a sell-off. Many believe that the appearance of strong economic data is misleading and that it is central bank intervention that has held up stock values. John Manley of Fargo Fund Management in New York said: “There’s no question people have been relaxed for the past month or two. But the market is now showing some disappointment in recent central bank commentary. They’ve given the market enough of a reason to get nervous again. It certainly has my attention, and I’m clearly not the only one.”
The Dow Jones just last week was only 150 points from an all-time high. However, it finished this week down 406.51 at 18,085.45. Although the NASDAQ set a record high on Wednesday, it still fell 2.4 percent for the full week. Nikolaos Panigirtzoglou, global market strategist, at JPMorgan Chase wrote in a note : “The stock market has been quite dependent on central bank liquidity in recent years.” An equity strategist Matt Maley claims that banks are becoming less accommodative over the past few weeks and that this would limit any upside to the market.
Colin Cieszynski, chief market strategist at CMC markets notes: “Historically, September is one of the weakest months of the year for stocks as it is, but this year markets had been kind of holding up. Today, we’re seeing though that support is really starting to give way and we’re seeing a seasonal sell-off getting underway in earnest.” The Canadian dollar or loonie also lost value losing 0.65 of a cent to 76.70 cents to the US dollar.
