‘Fear is gripping the markets’ as Canadian stocks tumble

Dip in tech shares this month shows level of investor unease with slow growth, trade war

As Canadian stocks tumbled Tuesday, wiping out roughly $29 billion in value from the S&P TSX Composite Index, market watchers said there could be more financial carnage to come.

“It’s a fool’s game trying to pick a bottom (but) the sentiment is resoundingly negative still,” warned Brian Belski, chief investment strategist at BMO Capital Markets.

The 194-point fall in Canada’s main stock index mirrored large drops around the globe, including a 551-point slide on the Dow Jones Industrial Average and 49 points on the S&P 500. The Dow has given up all its gains for the year — the index is off by 1 per cent in 2018.

In London, the FTSE 100 fell 52 points. In Tokyo, the Nikkei dropped 238 points. Tuesday’s fall followed another broad sell-off Monday, when the TSX Composite closed down 84 points.

Just as stocks were probably rising higher than warranted earlier this year, the pendulum is now swinging in the other direction, Belski argued.

“Momentum goes too far in both directions,” Belski said.

The price of oil also dropped Tuesday, falling by $3.77 (U.S.) to close at $53.43 per barrel. Falling oil prices typically hit stocks in Canada harder than in many other countries because of the energy sector’s significance to our economy.

Combined with concerns over the continuing trade dispute between China and the U.S. — Canada’s largest trading partner — that gives a “fundamental” explanation for the falling prices.

But the drop is deeper than would be warranted by a strictly rational explanation, said CIBC World Markets portfolio manager Craig Jerusalim.

“There are some fundamental reasons for some of what’s going on, like the oil price, or the U.S.-China trade dispute, but a lot of this is emotional,” Jerusalim said. “Fear is gripping the markets. We’re seeing some indiscriminate selling going on.”

The TSX Composite’s Tuesday fall meant a 1.29-per-cent drop in one day. With Bloomberg estimating the overall value of the index at $2.3 trillion, that means the stocks making up the index lost roughly $29.6 billion in market value.

In the U.S., the drop began with high-profile tech stocks such as Apple and Microsoft, but soon spread to other sectors.

Apple was worth more than $1 trillion (U.S.) at the start of November. Now, it’s valued at $880 billion.

The mighty tech titans and their seemingly endless pipeline of profits, which powered one of the longest bull markets in stocks, are looking a little less invincible. Shares of Apple and Google’s parent company, Alphabet, are down more than 10 per cent since the market peaked, while Facebook and Amazon have dropped more than 20 per cent.

Investors’ faith has been eroded by slowing growth and a trade war with China, as well as a steady stream of revelations about privacy lapses, security issues and mismanagement. If tech stocks cannot shake the fears, the rest of the market could feel the pain.

“The tech sector caught a cold and everything else got sick,” Jerusalim said.

And when there’s emotion on the markets, professional traders who manage large mutual funds can make plenty of money from panicky individual traders.

“The biggest single mistake you can make as an investor is selling at the bottom, not that I’m saying this is the bottom here,” Jerusalim said. “There’s a large psychological component to investing. Institutional investors do have the advantage in situations like this.”