So how do you like October so far?
Everyone knows this is a brutal month for stocks. But this, this is bad even by October standards. Not since at least 1971 has the month gotten off to such a lousy start, according to Clément Gignac, chief economist and strategist at National Bank Financial.
But look on the bright side: There are only 12 trading days left.
Thursday's 63.4-point skid on the S&P/TSX composite index brought the cumulative loss this month to 582.12 points or 5.3 per cent, driven largely by a selloff in the overcooked energy sector. And Mr. Gignac, for one, thinks we're not done yet. National Bank's 12-month target for the S&P/TSX is a lowly 9,600, or roughly 830 points below Thursday's close of 10,429.71 points.
October's reputation as a jinx month derives from stock market crashes in 1929 and 1987, and an assortment of mini-crashes in the years 1978, 1979, 1989 and 1997. The anniversary of the 1987 massacre, for the superstitious out there, is next Wednesday, Oct. 19.
But the calendar alone can't explain the swift reversal in investor sentiment these past few weeks. Credit also goes to rising interest rates, hurricanes, resurgent inflation fears, plunging consumer confidence and high gasoline, natural gas and oil prices — all of which are threatening to tip the U.S. and global economies into a period of slow, or even no growth.
Markets can only climb a wall of worry for so long.
“We've had a really good run in the sense that a number of negative factors were overlooked, and the market was resilient on both sides of the border,” said Elvis Picardo, chief market strategist at Global Securities Corp. “It now seems that reality is catching up.”
Nowhere has reality asserted itself more forcefully than in the energy sector. Oil and gas stocks — which account for about one-quarter of the S&P/TSX and were the single biggest factor in the index's breathtaking rise this year — have tumbled 14 per cent in October alone, as measured by the S&P/TSX energy index.
“We were taking profits in some of our oils in September because they did seem, at least in the near term, to really be overdone,” said Julie Brough of Morgan Meighen and Associates Ltd.
“You were starting to see things where oil prices would go up but the stock prices weren't moving, which seems to suggest there was some exhaustion in that area.”
Thursday, energy stocks slumped 3.1 per cent, for the biggest loss among the 10 TSX sector indexes. EnCana Corp., Canada's largest natural gas producer, was the biggest contributor to the S&P/TSX's loss, falling $1.71 or 3 per cent to $56.10. EnCana is now off 19 per cent from its Oct. 3 high.
Energy stocks weren't the only ones getting hammered Thursday. Gold shares were also down, as the price of bullion slipped in New York. And the dollar fell nearly a cent against the U.S. buck after Canada's trade surplus came up short of expectations in August.
If you thought Canadian markets were bad, they're worse in the United States, where the Dow Jones industrial average, S&P 500 and Nasdaq composite index are all in negative territory for the year. The S&P/TSX is still up nearly 13 per cent, but whether those gains last could depend on the extent of the slowdown in the United States.
“Right now, the States, with all their deficits, they're sort of supporting the world economy. And if they go crashing down, it could get very ugly for all the people that supply goods to them, including us,” said John Kinsey, portfolio manager with Caldwell Securities.
Where's an investor to hide?
Mr. Gignac likes defensive health care stocks, which should be less susceptible to a downturn in consumer spending. And tech stocks, which depend more on capital spending, should be insulated if the consumer goes into hiding.
Mr. Picardo also favours techs, which have been trading sideways for most of the year and may offer some upside. But for the market as a whole, he doesn't see any short-term relief. “I think the trend is going to be sideways or down for the next few months,” he said.
© The Globe and Mail
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