Investors uneasy about Q4 earnings
TORONTO — The Toronto stock market is likely in for more volatility and selling pressure this week as resource stocks react to falling oil and copper prices amid growing unease about the strength of the fourthquarter earnings reporting season.
Investors are also focused on the European Central Bank, which is widely expected to launch its own stimulus program of quantitative easing this week.
“There’s a lot of things going on right now. And I think that because of this you‘re getting to a point where people really don’t know what to do,” said Colin Cieszynski, chief market strategist at CMC Markets.
Also, the battered Canadian dollar could see further declines depending on what the Bank of Canada says next week about interest rates and economic conditions.
North American markets continued to register losses last week with the TSX losing 76 points or 0.5 per cent on top of a 2.5 per cent drop the previous week. The Dow industrials fell 225 points or 1.27 per cent.
But the base metals sector underwent a severe mauling, losing a good 15 per cent just last week as copper prices went into full retreat, falling below $2.50 US a pound in the worst performance since the 2008 financial crisis. The slide came amid weak trade data from China and a cut in the World Bank’s estimate for global growth this year.
Energy stocks were neutral as oil seemed to find some support around the $45 barrel level last week.
Prices have plunged almost 40 per cent since the end of November after the Organization of Petroleum Exporting Countries ruled out production cuts to support prices. Overall, prices are down about 55 per cent from the highs of June 2014 amid a huge supply/demand imbalance.
Meanwhile, the U.S. fourth-quarter earnings season gains momentum this week and Bob Gorman, chief portfolio strategist at TD Waterhouse, doesn’t think that market analysts fully appreciate how the U.S. dollar will impact earnings.
And that could be problematic as the sharp rise of the U.S. dollar significantly affects foreign earnings translated back into U.S. dollars.
“The fourth-quarter earnings are going to be a dash of cold water,” said Gorman, who noted that analysts had earlier been forecasting year-over-year earnings growth for S&P 500 companies in the neighbourhood of 10 per cent.
Meanwhile, the Bank of Canada makes its next interest rate announcement Wednesday, along with its latest Monetary Policy Report and a news conference by bank governor Stephen Poloz.
The bank is universally expected to leave its key rate at one per cent, where it has been since September 2010.