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European COVID lockdowns rattle S&P/TSX composite as energy, materials falter

·4 min read

TORONTO — New European COVID lockdowns rattled investors to end the week as Canada's main stock index fell with commodities faltering on worries about the impact on demand.

"People are using that as an excuse to take some money out of the resource stocks, and that's really what's been weighing on the TSX," said Greg Taylor, chief investment officer of Purpose Investments.

The S&P/TSX composite index closed down 82.51 points to 21,555.03 for nearly a one per cent drop from last Friday's record close.

In addition to some profit-taking, the market drop is a buying opportunity especially for energy stocks, he said. Producers are generating a lot of cash flows after adjusting their operations and that money will be funnelled to dividends and share buybacks.

"[It's] going to be a sector that is going to be really profitable for investors from a yield point of view. So (prices have) pulled back here from some really high levels but I don't think the trade's over by any stretch," Taylor said in an interview.

The energy sector was the big laggard Friday, losing 3.2 per cent as crude oil prices continued to fall. Enerplus Corp. lost 5.5 per cent while Cenovus Energy Inc. and Crescent Point Energy Corp. were down 4.7 and 4.6 per cent, respectively.

The January crude oil contract was down US$2.47 at US$75.94 per barrel and the December natural gas contract was up 16.3 cents at nearly US$5.07 per mmBTU.

Crude price were down 3.2 per cent on the day and six per cent for the week. But they have surged nearly 57 per cent so far this year.

Taylor said the dip in prices to the mid-US$70 a barrel isn't a bad thing.

"Most of these companies would have loved to have oil over $60 a few months ago, so the fact that we're even at these levels is still pretty amazing," he said.

Materials was also lower as gold prices fell after their recent rise. Centerra Gold Inc. was down 6.2 per cent while New Gold Inc. lost 6.1 per cent.

The December gold contract was down US$9.80 at US$1,851.60 an ounce and the December copper contract was up 10.3 cents at almost US$4.41 a pound.

Gold is a hedge against inflation, but Taylor said the recent rise is a surprise to many because it has come despite a strengthening U.S. dollar.

"Maybe this is a sign that the inflation fears are real and people should be looking for ways to hedge that."

U.S. markets were mixed as the Nasdaq composite was helped by gains from the technology sector.

In New York, the Dow Jones industrial average was down 268.97 points at 35,601.98. The S&P 500 index was down 6.58 points at 4,697.96, while the Nasdaq composite was up 63.73 points at 16,057.44.

In Canada, technology rose on the TSX with Hut 8 Mining Corp. up 6.4 per cent.

"It seems like it's back to being the hiding spot. We are seeing this in the U.S. too that the area that's doing the best is the megacap tech stocks."

Air Canada lost 2.4 per cent even as industrials moved slightly higher.

Concerns about a potential spread of lockdowns hurt the airline's shares, but they didn't fall as much as U.S. airlines because the Montreal-based airline announced it was withdrawing from further federal relief after borrowing more than $1 billion. The money was used to pay back customers whose flights were cancelled during the COVID-19 pandemic.

Taylor said Air Canada's announcement Friday is reassuring because there was fear the airline would have to do another equity offering to pay back the federal money.

The airline industry also got some good news when Ottawa dropped the requirement for COVID tests for short trips to the U.S.

The Canadian dollar traded for 79.12 cents US compared with 79.27 cents US on Thursday. The loonie fell as low as 78.97 cents Friday to reach its weakest level since Oct. 1.

This report by The Canadian Press was first published Nov. 19, 2021.


Ross Marowits, The Canadian Press

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