It's déjà vu for stock investors in Canada

COVID RESURGENCE

Canada’s stock market is on pace for its first monthly loss since the coronavirus pandemic rocked global markets in March, signalling investors should brace for a wild ride ahead.

The problem today, as it was in the spring, is the spread of COVID-19. Virus cases are rising rapidly in parts of the world that seemed to have the problem under control — including Canada. That’s a negative for the country’s growth outlook, and for a market that’s laden with commodities and bank shares, making it highly sensitive to the global outlook as well.

COVID-19 cases have hit a record high in European countries with some imposing new lockdown restrictions. Closer to home, Prime Minister Justin Trudeau said a second virus wave has started in Canada’s four biggest provinces. A resurgent dollar has seen gold give up some of its gains, forcing investors to question whether the safe haven asset is facing an even bigger slump as stimulus talks in the United States stall. And uncertainty around the next leader of the world’s largest economy is also adding to worry.

Anxiety splayed across the Canadian stock market this month is an indication of what the final months of the year could look like for investors. “As we move into the fourth quarter, it sets up for a pretty volatile quarter,” said Chris Kerlow, portfolio manager at Richardson GMP. “A big part of the near term volatility has been the spike in virus cases.”

Down about 3 per cent so far this month, the S&P/ TSX Composite Index has about 72 per cent of its stocks in the red. About half of the trading sessions in September were down days, according to data compiled by Bloomberg. In March, exactly 11 days were up and 11 were down.

Prior to September, the benchmark had five consecutive months of gains — including a swift rally back into the bull zone — as governments around the world flooded markets with trillions of dollars worth of fiscal and monetary stimulus.

Now, that rally stands on shaky ground.

Making up a whopping 65 per cent of the Canadian market, tech, financials and commodities-related stocks are among the biggest losers in September.

An economic recession, a slump in gold prices and uncertainty around the U.S. elections may mean the TSX could struggle to close in the green this year, Kerlow said. A pandemic-ridden economy could hurt earnings growth.

A surge in the shares of consumer staples companies, including grocery chains and vitamin supplement providers, paints a picture of investor anxiety over the resurgence in COVID-19 cases. The S&P/TSX Consumer Staples Index is the biggest gainer so far this year after reaching a fresh record earlier this week.