Profit-taking after rally sinks toronto

TORONTO • The Toronto stock market closed firmly in the red Monday, led by declining oil and mining stocks as economic concerns persuaded investors to cash in some profits from last week’s sharp run-up.

The S&P/TSX composite index lost 148.9 points to 12,588.02, giving back most of last week’s resource sector-led gain of 1.5%.

“There’s still pessimism and evidence that the slowdown in China is permanent and so you’re going to see money managers taking profits after a run like we’ve seen,” said Kash Pashootan, vice-president and portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company.

Utilities were also a major drag as U.S. bond yields continued to head higher.

The Canadian dollar erased early gains, moving down 0.03 of a cent to US96.69¢ amid falling commodity prices.

U.S. indexes added to losses racked up last week as the Dow Jones industrials was 70.73 points lower to 15,010.74, the Nasdaq composite index dropped 13.69 points to 3589.09 while the S&P 500 index was down 9.77 points to 1646.06.

The major event for markets this week is the release Wednesday of the U.S. Federal Reserve’s minutes from its most recent meeting at the end of last month. Investors hope to get a better idea of the pace at which the Fed will start to wind up a key measure of economic stimulus next month.

Recent economic data and public statements by Fed policy-makers have reinforced the point of view that the central bank will begin tapering its US$85-billion a month in bond purchases as early as September. The policy, which is intended to lower interest rates to shore up the U.S. recovery, has also been credited for a strong rally on many global markets.

Worries about Fed tapering helped push the Dow industrials down 2.2% last week but Mr. Pashootan observed that there’s another reason.

“U.S. stocks are simply becoming expensive,” he said. “You look at where bond yields are headed, you look at tapering, you look at the result of rising rates and you combine all of that with valuations that are considerably more expensive than they were six months ago and that would all lead to us positioning [ourselves] to not be surprised to see the U.S. markets here soften by 10%.”

Last week’s decline still left the Dow up 15% year to date.

Speculation about Fed tapering continued to send U.S. bond yields higher, with the benchmark 10-year Treasury at a twoyear high of 2.88% Monday, up 0.05 of a point from Friday and up well over 100 basis points since early May. The rise followed a 24.5 basis point rise last week.

Rising bond yields have been bad news for interest-sensitive stocks such as utilities and the TSX utilities sector led decliners Monday, down almost 3%. Algonquin Power and Utilities gave back 30¢ to $6.64.

The mining sector fell 2.44% as September copper dipped US3¢ to US$3.33 a pound. Teck Resources fell 59¢ to $28.11.

The September crude contract on the New York Mercantile Exchange was down US36¢ to US$107.10 a barrel and the energy sector was down 1.78%. Canadian Natural Resources declined 83¢ to $30.67.