By Scott Anderson
TORONTO (Reuters) - The good news is that Toronto stocks will get over the bout of political and commodity-price anxiety that's been ailing them. The bad news is they may well have seen their 2005 highs already.
"I think we will get a rally at some stage here, however, that rally is within the context of the overall broadening top to the market," said Rick Hutcheon, president and chief operating officer at RKH Investments in Toronto.
"The bull market needs to pause. It needs to take a rest. It needs to sit back and re-evaluate everything," he said.
Investors got their hopes up earlier this year when the Toronto Stock Exchange's S&P/TSX composite index raced out to an early March high of 9,968 points, instilling expectations of double-digit returns for the year.
It was a flamboyant kick-off for the year, thanks largely to record crude oil prices, which hit almost $60 a barrel, as well as stronger metal prices. But the euphoria has been wiped out over the past few weeks as the love affair with resource-based issues cooled.
The market did bounce up 94.20 points on Friday to close at 9,369.30, but it ended flat on the week and within striking distance of the 9,246 mark that started the year.
Investors have been forced to climb a wall of worry in 2005 over a whole new group of bugaboos, from soaring crude prices to political uncertainties in Ottawa over how long the minority Liberal government can last amid a kickback scandal.
Political uncertainty and nervous markets do not make good bedfellows.
Mixed economic data from both sides of the border and the absence of strong signals from central banks on interest rates have also left investors on tenterhooks.
"We're getting battered around by things. We've got high oil that's going to weigh for a while and mixed economic data," said Katherine Beattie, an economist at Action Economics.
"We did have a great start to the year, but the high is in. I'd be very surprised if we break 9,968," Beattie said.
She notes one troubling sign: each time the market tries to establish a rally it registers a lower top from the previous one before backing off. This, she says, does not bode well for a return to March highs.
Disappointing first-quarter results from energy companies -- which booked losses on the back of hedging -- and mixed results from big miners have also roiled the markets.
"It has been disappointing. Nobody is delivering the kind of strong earnings here. We're not seeing the kind of earnings that we would have hoped to see at this point in the cycle," said Conor Bill, executive vice-president at Mt. Auburn Capital Corp.
Although pessimism -- or at least, caution -- abounds at present, most observers seem to be sticking to the assumption that the market ends the year higher than it starts. They are just reluctant to commit to any firm target.
Bill, however, remains one of the few convinced that some good could come out of this year.
"We are not in for a down year. The commodities and the resources are going to help us out here. We are retrenching here because we had a fantastic run to start the year and it went too far, too fast," he said.
"It's taking a breath and letting a little steam out on earnings, but resources are going to help us out by the end of the year."
(Bay St. Week Ahead appears weekly. Comments or questions can be e-mailed to scott.anderson@reuters.com.)
($1=$1.26 Canadian)
© Reuters Limited. All Rights Reserved.
Reproduction or redistribution of Reuters content, including framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
