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North American stock markets partially recover after plunging on fears of lockdowns

TORONTO — Canada's main stock index appeared headed to its worst day in more than three months on Monday until it experienced a late partial recovery from fears of another COVID-19 economic shutdown.

TORONTO — Canada's main stock index appeared headed to its worst day in more than three months on Monday until it experienced a late partial recovery from fears of another COVID-19 economic shutdown.

A surge in COVID-19 cases in Europe precipitated the selloff. The largest daily increase since May in Britain is expected to prompt Prime Minister Boris Johnson to impose new restrictions.

"They have sparked fears, the rising cases, of a renewed economic shutdown. And this is led really by reports that England is considering another national lockdown to slow down the spread of the virus," said Angelo Kourkafas, an investment strategy analyst at Edward Jones.

The virus has picked up after the relaxation  of restrictions put in place this year to combat the COVID-19 pandemic..

The Ontario government is among the provinces also under pressure to further respond to escalating rates of the coronavirus.

"So it's kind of this delicate dance between opening up the economies and higher or lower infections," Kourkafas said in an interview.

Concerns about a new spread of the virus is trumping recent optimism about a vaccine, which isn't expected to be widely distributed until mid-2021 at the earliest.

Investors are also worried that a partisan fight over further fiscal stimulus in the United States and a vacant Supreme Court seat will prevent any action before the November election.

"With the passing of the Supreme Court Justice Ruth Ginsburg, that has kind of raised concern that we're going to see this fight continuing to interrupt and distract from the ongoing negotiations between Democrats and Republicans at getting another relief package passed."

In addition, possible retaliation from China to U.S. President Donald Trump's effort to ban TikTok and WeChat could further escalate trade tensions, Kourkafas added.

The S&P/TSX composite index closed down 217.20 points at 15,981.77 after being on a path to twice that loss earlier in the day. 

In New York, the Dow Jones industrial average was down 509.72 points at 27,147.70 after dipping as low as 942.27 points. The S&P 500 index was down 38.41 points at 3,281.06, while the Nasdaq composite was down 14.48 points at 10,778.80. 

The Canadian dollar traded for 75.23 cents US compared with 75.84 cents US on Friday. 

Nine of the 11 major sectors on the TSX were lower led by energy, health care and materials.

Energy slumped 4.3 per cent as worries about weaker global demand sent energy prices lower. Vermilion Energy Inc dropped 8.7 per cent.

The November crude contract was down US$1.78 at US$39.54 per barrel and the October natural gas contract was down 21.3 cents at US$1.83 per mmBTU. 

Materials fell 3.1 per cent with First Majestic Silver Corp. losing 9.3 per cent, Hudbay Minerals Inc. off nine per cent and First Quantum Minerals Ltd. down 8.8 per cent.

The December gold contract was down US$51.50 at US$1,910.60 an ounce and the December copper contract was down 8.4 cents at US$3.03 a pound. 

Industrials also dipped as shares of Air Canada plunged 8.2 per cent.

Technology and consumer staples were the only sectors to increase.

Shopify Inc. gained 3.8 per cent while Lightspeed POS Inc. was up three per cent.

The continued pullback of North American stock markets should continue after the five month rally with periodic setbacks, said Kourkafas.

"I think the worst is behind us," he said after several sessions of losses. 

"A durable recovery and bull market is likely still in place but we shouldn't be surprised to see these 10-per-cent pullbacks, which is by the way typical when we look back at the early recovery phases of the market when we come out of a bear market. 

This report by The Canadian Press was first published Sept. 21, 2020. 


Ross Marowits, The Canadian Press