Investors should prepare for a rough ride in the coming weeks as stock markets in Canada and the United States continue to fluctuate, resulting in big swings.
The S&P/TSX composite index tumbled 166.8 points to 13,869.88 as the TSX fell further into correction territory, losing 12 per cent since the record highs of early September. It is close to shedding all its gains for the year.
U.S. markets moved closer to a formal correction, defined as a plunge of at least 10 per cent from recent peaks. The Dow Jones industrials fell 173.45 points to 16,141.74.
The Nasdaq lost 11.85 points to 4,215.32 and the S&P 500 index declined 15.21 points to 1,862.49.
The Canadian dollar is sitting at its lowest point in more than five years as prices for crude oil dropped to levels that may raise questions about the potential profitability of some oilsands projects.
“It’s all tied into the meltdown we’re having in crude at the moment,” said Bipan Rai, director of foreign-exchange strategy at CIBC World Markets Inc., said of the loonie’s performance. “Being a commodity currency, being one of the major exporters of crude globally, our domestic currency is tied to that.”
Colin Cieszynski, chief market strategist at CMC Markets, says he expects the markets for choppy for another month.
“It’s a little different correction than most. It’s not that the wheels are falling off the economy or anybody is in trouble,” he said. “The markets were plain due for a correction.”
Cieszynski attributes the drops to a seasonal correction, noting markets are traditionally at their weakest at this time of year. Added to that is the looming end of U.S. Federal Reserve’s quantitative easing program, which has injected billions of dollars into the bond market.
He noted that the reason the quantitative easing program is scheduled to end later this month is because the U.S. economy is now doing better.
“On days like this, you also get what I call forced selling,” Cieszynski said, when margin calls or stop loss orders kick in, especially when the Dow Jones index broke below 16,000 earlier in the day before recovering somewhat. At one point, the Dow was down as much as 460 points.
Other factors include weaker economic data out of Europe and Asia, which brings worries to North American markets, said Douglas Porter, chief economist at BMO Capital Markets.
“We have seen a deeper than expected slowdown in Europe. While no one was expecting miracles out of Europe, I think even the low bar that was set for Europe hasn’t been passed,” he said. “The economy there has stumbled again.
“The market was already dealing with cooler growth in China, and now there’s concern the slowdown in Europe and Asia is working its way to North America,” Porter said.
U.S. retail sales numbers, released Wednesday, were two-tenths of a per cent off estimates, which normally wouldn’t be that much of a concern, but it’s adding to the sour mood of investors.
“The U.S. was the big hope to keep pulling to global economy along,” Porter said, and if the U.S. consumer is pulling back, then “the world is left without an engine to drive it.”
In addition to the economic concerns, geopolitical worries around ISIS and the Ebola virus are another factor in the plunging markets.
“I think it is unsettling investors,” he said, adding that the Ebola virus may make U.S. consumers more cautious about going out, spending or even travelling. “Frankly, it’s a pretty big unknown just exactly what kind of impact it can have.”
But airline stocks were already down on Wednesday after it was reported that a second health-care worker infected with the Ebola virus had flown on a commercial flight on Monday from Cleveland to Dallas.
Public health officials were notifying the 132 passengers on the flight, though the airline’s crew reported that the woman showed no symptoms during the flight. However, a health official said she had taken her temperature, and it was slightly elevated.
Porter believes the overall economic situation means that the U.S. Federal Reserve may hold off raising interest rates. And in Canada, given the drop in oil prices, the Bank of Canada may wait until 2016 to raise interest rates, he added.
When asked what investors should do given the wild swings in the market, Cieszynski said those in the market for the long term should simply “look past these things and ride it out.”
For shorter-term traders, the volatility has picked up, with lots of intra-day reversals. “For traders, there are some great opportunities,” he said.
- With files from the Toronto Star’s wire service