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Stock markets cap first winning week since February despite snapping rally

TORONTO — Canada's main stock index capped its first winning week since mid-February despite snapping a three-day rally as cases of COVID-19 continue to soar. The S&P/TSX composite index closed down 683.43 points, or 5.1 per cent, at 12,687.74.

TORONTO — Canada's main stock index capped its first winning week since mid-February despite snapping a three-day rally as cases of COVID-19 continue to soar.

The S&P/TSX composite index closed down 683.43 points, or 5.1 per cent, at 12,687.74. The market gained seven per cent in the week thanks to a 19.1 per cent increase over three days. But it still remained more than 29 per cent off the peak set Feb. 20.

"It's been a nice week, but it's been a pretty brutal month," said Macan Nia, senior investment strategist at Manulife Investment Management.

In New York, the Dow Jones industrial average was down 915.39 points at 21,636.78. The S&P 500 index was down 88.60 points at 2,541.47, while the Nasdaq composite was down 295.16 points at 7,502.38.

It's not unexpected that the very short winning streak would come to an end after the largest increase since the early 1930s, said Nia.

"We saw a bit of a relief rally because markets don't move in straight lines and one should probably anticipate there to be bear market rallies that we saw over the past couple days during these prolonged dislocations," he said.

In the 11 bear markets since the 1970s, six included a recession where the average selloff from the peak was 40 per cent, about 20 per cent more than when there's no recession.

A material impact on economic activity is expected with mass parts of the world in quarantine to stem the spread of the novel coronavirus, said Nia.

"History would suggest and probability would suggest that there's likely more downside ahead before we can create a sustainable bottom and a sustainable rally coming out of that."

He said the upswing is unlikely until there's more clarity that the virus has peaked and the curve has flattened.

The Canadian dollar gained to trade for 71.14 cents US compared with an average of 71.04 cents US on Thursday despite the Bank of Canada's decision to cut its key rate by half a percentage point to 0.25 per cent.

Nia said that's because a rate cut was expected after the U.S. Federal Reserve made its move earlier.

Ten of the 11 major sectors on the TSX were lower, the exception being real estate.

Energy was the biggest loser with the sector falling 9.4 per cent as lower crude oil and natural gas prices pushed Seven Generations Energy Ltd. and Whitecap Resources Inc. down 17.5 and 15.2 per cent respectively.

The May crude contract was down US$1.09 at US$21.51 per barrel and the May natural gas contract was down 1.8 cents at US$1.67 per mmBTU.

Crude prices fell on weaker demand as more people are house bound, and a failed attempt to convince Saudi Arabia and Russia to end their price war.

The materials sector dropped six per cent led by a 14.3 per drop by Teck Resources Ltd.

The June gold contract was down US$6.20 at US$1,654.10 an ounce and the May copper contract was down 0.6 of a cent at US$2.17 a pound.

The heavyweight financials sector was also lower due to reduced interest rates and the risk of a severe recession, said Nia.

"That will be a headwind for financial earnings moving forward."

This report by The Canadian Press was first published March 27, 2020.

Companies in this story: (TSX:TECK.B, TSX:VII, TSX:WCP, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press