Summary

  • Stocks in Canada fell for the 6th straight month in September as selling accelerated on Euro-slowdown fears.  The S&P/TSX index fell 9.0% in September and 12.6% for the 3rd quarter of 2011.  US stocks fell 14.3% while the Global stock index fell by 17.1% over the past three months.
  • The Canadian bond market once again benefitted from economic growth fears and stock market weakness which sent funds back into the bond market and pushed yields lower.  The DEX bond index gained 1.82% in September and 5.12% in the 3rd quarter as government bond yields fell to all-time lows.  
  • Commodity prices were mostly weaker last month as the CRB main index lost a massive 13.0%, led lower by Silver (down 28%), Copper (down 25%) and Lumber (down 16%).  Uranium was the only gainer, rising 8.5%.      
  • The Economic data was not nearly as dire as the market expectations.  US growth slowed but remained positive as did the data from China.  Europe was the only region to show overall declines in some key economic data points.  
  • In terms of stock sectors it was more of the same in September as the resource groups lead on the downside (Energy down 15.2% and Basic Materials down 14.7%) while the defensive sectors showed some net gains (Consumer Staples up 1.4% and Utilities up 0.3%).
  • Our Stock Market Outlook is still positive despite being far too bullish so far in 2011.  Stocks are reflecting a recession that has yet to occur and may not actually come about.  Fears about slowdowns due to the Euro-zone financial crisis and additional worries about growth in China and the U.S. has created the lowest stock valuations in decades at a time when interest rates are at all-time lows (which historically supports higher stock valuations), earnings growth remains positive, companies are flush with cash and the economic data has yet to show the slowdown feared by investors, who are also showing the most bearish sentiment towards stocks since the last market lows in early 2009.  Such periods have always resulted in strong future stock prices and we continue to view current stock levels as a ‘generational buying opportunity.’

Financial Markets: Monthly Review and Outlook

Stocks finished their worst quarter on Friday since the financial meltdown in 2008 as investors across the globe ran to the safety of bonds and cash.  Friday’s loss capped a 12% third-quarter decline for the Dow Jones Industrials, the biggest percentage drop since the first quarter of 2009 and the biggest point swoon since 2008’s fourth quarter. The session also capped the measure’s fifth consecutive monthly drop, the longest such streak since the six months ending in February 2009.  The S&P500 stock index had a quarterly loss of 14% (and over 7% in September alone) while the Nasdaq Composite tumbled 13% as those two indexes each also posted their worst quarterly drops since the fourth quarter of 2008.  Global stocks ended their worst quarter since the depths of the 2008 credit crisis, crippled by Europe’s debt debacle, a U.S. credit downgrade and fears of a sputtering global economy.  The MSCI World Index fell by over 17% in the 3rd quarter, with German and French markets each falling by over 25%.

The S&P/TSX Composite index in Canada fell 12.6% in the quarter.  That puts the Canadian market 19% below its April high and the US 17% below that same peak, both on the verge of the generally-accepted ‘bear market status’ of a 20% decline in prices.  The global stock market is already in a bear market due to the exceptional weakness in European markets.  The MSCI World Index has fallen 21.5% from its April high.  In terms of sectoral weakness, the resource groups have lead on the downside in much the same way they lead to the upside during 2009-10.   The TSX Energy index is down 33% from its high earlier this year while the TSX Mining Index is down a whopping 45% in the past five months as investors move to areas views as ‘safe havens’ such as high yield stocks, gold and bonds.  The table below shows the final numbers for the world’s major stock indices for various periods ended Sept. 30th.

Stocks Suffer Worst Quarter since 2008

Stocks have been battered by the threat of a slowdown and fears that a Greek debt default could spark a credit shock similar to that caused by Lehman Brothers in September 2008, sending markets into a tailspin.  Fears of a hard landing in China, the world’s second largest economy, joined the potent mix troubling investors in a worrying sign for the world economy, which has looked to China as a rare source of expansion.

But investors have been focused only on the negative headlines.  Typical of recent market activity was on the last day of the third quarter, Sept. 30th, when the following business news highlighted the ticker in Canada:

  • Canadian GDP expands in July following the 2nd quarter decline.
  • US employment claims, ISM index and consumer confidence all come in ahead of expectations pointing to further economic growth in the 4th quarter
  • Minmetals of China announced its intention to buy Canadian copper miner Anvil Mining, at a 42% premium to prior day’s closing price.
  • Earnings warnings at lowest level in three years going into quarter end
  • German retail sales down on Euro confidence worries.

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