Stock markets fall ahead of earnings season

Banks ‘taking it on the chin’ over loan losses, oil

TORONTO • Canada’s main stock index failed to keep up with last week’s stellar performance, moving lower ahead of what is expected to be a grim corporate earnings season.

Some large U.S. banks kick off the first-quarter results on Tuesday.

“No one’s expecting anything remotely good from these numbers.

“We all know that they’re going to report bad numbers,” said Allan Small, senior investment adviser at HollisWealth.

He said there’s talk that some investors were just trying to sell to get ahead of the results.

The S&P/TSX composite index closed down 90.69 points at 14,075.94.

In New York, the Dow Jones industrial average was down 328.60 points at 23,390.77. The S&P 500 index was down 28.19 points at 2,761.63, while the Nasdaq composite was up 38.85 points at 8,192.42 on large gains by Tesla Inc. and Netflix Inc.

The results followed a huge runup over the past few weeks, including last week’s best performance by U.S. markets since 1974.

“Is it any surprise that we would take some profits off the table there?” Small said in an interview, adding some markets observers mused that markets had come back too fast.

Monday’s decrease was led by drops in the heavyweight financial and energy sectors.

Banks were “taking it on the chin” over concerns they’ll face an increase in bad debts because of the weak oil environment.

Financials was among seven of the 11 major sectors on the TSX to fall.

It dropped 2.3 per cent as CI Financial Corp. lost nearly eight per cent while Canada’s largest banks were down two to three per cent.

Real estate, health care and consumer discretionary were among the largest declining sectors on the day. Health care fell 2.6 per cent as shares of Aurora Cannabis Inc. decreased 13.1 per cent after the cannabis producer announced a one-for-12 share consolidation.

Energy was down slightly after crude oil prices swung to a loss after early gains. That hurt Seven Generations Energy Ltd. and MEG Energy Corp. which lost 5.2 and 4.7 per cent respectively.

The May crude contract was down 35 cents at US$22.41 per barrel and the May natural gas contract was down at 0.9 of a cent at US$1.70 per mmBTU.

Crude oil prices fell after some market observers said the 9.7-million-barrel cut by OPEC and Russia was not large enough.

Oil demand has cratered as businesses have shut and people have remained at home to fight the spread of COVID-19.

“There’s a lot of oil out there and they can’t find enough places to store it until the prices come back up to be able to sell it on the open market,” Small said.

The Canadian dollar traded at US71.76 cents, compared with an average of US71.51 cents on Friday.

Materials was the big winner, gaining about five per cent as gold prices appreciated.

That helped Eldorado Gold, B2Gold Corp. and Kinross Gold Corp. whose shares were each up more than 10 per cent.

The June gold contract was up $8.60 at US$1,761.40 an ounce and the May copper contract was up 4.3 cents at US$2.30 a pound.

Gold climbed to within about eight per cent of the all-time high set in 2011 on worries that massive monetary and fiscal stimulus will lead to inflation.

New cases of the novel coronavirus appear to growing at a slower pace, although the death toll keeps rising.

Gold prices could fall as the pandemic winds down and governments contemplate reopening economies by as early as the beginning of May, said Small.

“The conversation has gone from how many people are dying, how many people are infected ... to how and when are we opening up this economy and what’s the safest way to do it,” Small said. “I’m just waiting for our prime minister to become a little bit more positive. I’m hoping that will happen and when it does, I’m hopeful that that will reflect on investors.”

THERE’S A LOT OF OIL OUT THERE AND THEY CAN’T FIND ENOUGH PLACES TO STORE IT.