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North American stock markets fall on ominous new signs about the economy

TORONTO — North American stock markets fell midweek on ominous new signs about the virus-weakened economy.

TORONTO — North American stock markets fell midweek on ominous new signs about the virus-weakened economy.

After rallying Tuesday on hope that the spread of the COVID-19 pandemic was being contained, market sentiment reversed as economic and corporate earnings revealed the extent of the virus-related damage, said Candice Bangsund, portfolio manager for Fiera Capital. 

"Our sense is that markets were vulnerable to disappointing news and a potential pullback after such a strong run up in the last month because risks continue to prevail," she said in an interview.

U.S. retail sales sank 8.7 per cent last month as widespread stay-at-home orders began to take a bite out of a key engine of the American economy. A survey of business conditions for manufacturers in New York state also plunged to its lowest level in history and industrial production across the country also failed to meet the low expectations of economists.

In Canada, the economy contracted nine per cent in March, which would be the sharpest decline in the nearly 60 years that Statistics Canada has kept such data.

On top of that, additional U.S. banks said they set aside billions of dollars for an expected avalanche of defaults.

"As it continues to spread and as economies continue to remain in lockdown, our sense has been that investors will remain beholden to virus-related headlines and subject to more periodic bouts of volatility in the near term," Bangsund said.

The S&P/TSX composite index closed down 299.85 points at 13,958.58, partially recovering from an intraday low of 13,900.66.

In New York, the Dow Jones industrial average was down 445.41 points at 23,504.35. The S&P 500 index was down 62.70 points at 2,783.36, while the Nasdaq composite was down 122.56 points at 8,393.18.

The Canadian dollar traded for 70.99 cents US, compared with an average of 71.92 cents US on Tuesday.

Toronto's main index was hampered by a broad-based decline with 10 of the 11 major sectors falling. The lone exception was consumer staples, which climbed as Alimentation Couche-Tard Inc. was up 4.5 per cent.

Energy led the drop, losing 5.3 per cent as crude oil prices hit a new 18-year low. That caused shares of Secure Energy Services Inc., Enerflex Ltd. and Vermilion Energy Inc. to decrease 18.3, 15.7 and 15.6 per cent respectively.

The May crude contract was down 24 cents at US$19.87 per barrel and the May natural gas contract was down 5.2 cents at nearly US$1.60 per mmBTU.

Energy markets were hurt by the International Energy Agency warning that the OPEC deal to curb output won't be enough to counteract the record levels and virus-related demand destruction.

And then the U.S. announced a record increase in crude oil stockpiles last week. They rose by 19 million barrels to reach 503.6 million barrels.

The heavyweight financials sector lost more than three per cent with Canada's big banks down between 2.4 and five per cent.

Materials was also lower as gold prices dropped for the first time in five days after setting seven-year highs. Shares of Ivanhoe Mines Ltd. dropped 12.2 per cent.

The June gold contract was down US$28.70 at US$1,740.20 an ounce and the May copper contract was down 3.35 cents at nearly US$2.30 a pound.

Bangsund said the market decrease came amid lingering questions about how much longer the economy will be shut down.

"I think it's a healthy pullback from a market that had perhaps run too far, too fast given the level of uncertainty out there and the lack of visibility," she said.

In addition to not having a firm date for the economy to reopen, it's not known if the recovery will be staggered.

"We actually think that there's a good chance that the markets could revisit the March lows again, before a more sustainable bull market ensues."

This report by The Canadian Press was first published April 15, 2020.


Ross Marowits, The Canadian Press