October 25th, 2020

S&P/TSX composite follows US markets lower as financial sector slips


By Anita Balakrishnan, The Canadian Press on October 13, 2020.

Canada's main stock index was down in early trading Tuesday as the gold mining stocks fell with the price of gold and U.S. stock markets also moved lower. Financial numbers flow on the digital ticker tape at the TMX Group in Toronto's financial district on May 9, 2014. THE CANADIAN PRESS/Darren Calabrese

Toronto traders returned to a tepid market on Tuesday, as the Toronto Stock Exchange closed slightly lower on the first day of a short week.

Natalie Taylor, a portfolio manager with CIBC, said that the beginning of earnings season, led by U.S. banks, was not enough to excite the market on Tuesday – despite a strong showing from U.S. markets on Monday.

“Typically when the Canadian market’s closed, on the day that it starts trading again, you’ll see a bit of a catch up,” said Taylor. “I would have expected a little bit more strength here in Canada “¦ it’s been pretty quiet.”

The S&P/TSX composite index was down 51.98 points at 16,510.83.

Many sectors held steady, but the S&P/TSX Capped Financial Index closed more than one per cent lower. Taylor attributed the decline to U.S. corporate earnings reports from JPMorgan Chase, Citigroup and BlackRock, although the firms reported better-than-expected results.

“U.S. earnings kicked off today with the financial sector,” said Taylor. “I think the outlook for revenue is pretty muted, given where interest rates are today. And then loan growth is also very tepid, given that we’re seeing repayment of any kind of credit lines that were drawn during the height of the crisis.”

Taylor said that after a tough second quarter – as businesses absorbed the impacts of COVID-19 lockdowns – expectations for third-quarter earnings have crept higher.

“That’s really what’s going to drive the market going forward,” said Taylor.

“We know we’re going to be up versus Q2 and we’re expecting a strong Q3. Whether those expectations have gotten ahead of themselves at this point – and what the outlook is from here – is going to be very important to gauge how we finish the year here in the market.”

In New York, the Dow Jones industrial average was down 157.71 points at 28,679.81, the S&P 500 index was down 22.29 points at 3,511.93, while the Nasdaq composite was down 12.36 points at 11,863.90.

The Canadian dollar traded for 76.14 cents US compared with 76.13 cents US on Friday.

Oil prices ticked up on Tuesday thanks to an improved outlook for demand in China, after a report that September imports there rose 2.1 per cent, month over month, Taylor said.

The November crude contract was up 77 cents US at US$40.20 per barrel and the November natural gas contract was down 2.6 cents US at US$2.86 per mmBTU.

Gold prices faded, though, as U.S. lawmakers shifted focus to the confirmation hearing for the U.S. Supreme Court. The December gold contract was down US$34.30 at US$1,894.60 an ounce and the December copper contract was down nearly two cents US at US$3.04 a pound.

Taylor said that markets had been hopeful that a fiscal stimulus package would be passed before the U.S. presidential election and boost the economy. The thinking, Taylor said, is that gold is a hedge against inflation, and a stimulus package would boost inflation.

“The fiscal package – that’s been back and forth, back and forth for the last number of weeks and months, even “¦ I think that’s weighing on markets,” said Taylor.

“Gold is highly sensitive to increased stimulus “¦ with that looking less likely today, gold’s giving back a little bit here.”

Taylor said that investors are also watching headlines about a future vaccine for COVID-19. Johnson & Johnson said this week it had paused a clinical trial of its COVID-19 vaccine, as did Eli Lilly and Co.

“That’s a bit of a negative on the market as well, today,” Taylor said.

This report by The Canadian Press was first published Oct. 13, 2020.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)

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