The TSX fell in early Wednesday trading on weakness in health care and technology stocks.
The drop reflects investor fears about Bank of Canada hawkishness tipping the economy into recession.
Health care fell 3.1 per cent while tech shed 2.6 per cent, though losses were limited by the energy sector’s initial 0.5-per-cent gain.
The TSX is down by 12.5 per cent for the quarter, nearing losses experienced at the beginning of the COVID pandemic.
Oil had risen for four straight sessions – a streak broken by today’s 2.2-per-cent loss – on the view that tight supply will persist through a weaker global economy, which was spurred on by yesterday’s G7 agreement to explore a price cap on Russian crude.
The Russia-Ukraine war continues to infringe on oil trade flows, an effect compounded by falling U.S. stockpiles, stalled discussions on Iran’s nuclear deal, lower Ecuadorian output due to protests, and recently suspended shipments from key Libyan ports due to political turmoil.
That said, the commodity remains on track for its first monthly decline since November, which is in stark contrast to its dominance as an inflation hedge over the first half of the year. In spite of the impending decline, the value-heavy TSX remains ahead of the S&P 500 and its ailing tech giants.
Microsoft, Amazon, Apple, Netflix and Meta have lost approximately 20-70 per cent since January as Q1 U.S. consumer spending expanded at the slowest pace since the pandemic recovery.
Though ailing, the TSX’s outperformance is likely to continue thanks to outsized financials and materials exposure, ongoing energy supply constraints and energy producers’ average expected 15-per-cent free cash flow yield this year, three times the S&P’s figure. Fuel demand may also find a further lift due to China’s decision to halve the time new arrivals must spend in isolation.
Certain players are taking advantage of high oil prices, still up 50 per cent for the year, to expand their reach, as evidenced by Whitecap Resources’ purchase of XTO Energy Canada from Imperial Oil and Exxon Mobil for $1.9B.
Other commodities like lumber, copper and wheat have also experienced recent losses, raising the potential of reduced growth and widespread market pain. This is tempered by the fact that Canadian consumer spending has risen steadily since Q3 2020.
Generally speaking, investors should remain vigilant for lower earnings expectations as the rate cycle evolves, with capital light, cash flowing businesses the most likely to withstand volatility until inflation begins to decline.
The TSX closed down by 0.75 per cent, harboring losses of approximately 11.15 per cent year-to-date. This amounts to half of the U.S. market’s 21.45-per-cent losses. Developed International and Emerging Markets are down 20.85 and 17.17 per cent year-to-date, respectively.
Canadian bond yields are down 10-20 basis points over the past two weeks as markets weigh the probability of the Bank of Canada nailing a soft landing. This has provided a reprieve for income investors who have seen their diversified fixed income portfolios drop almost 15 per cent over the past year.
As post-pandemic momentum begins to normalize, our investor community has been analyzing opportunities in commodities while the space is still hot.
C2C Gold (CTOC) finalized its acquisition of The Rock Gold Corp., a privately held Newfoundland-based gold exploration company with 40+ mineral claims.
Green River Gold (CCR) provided an update on its 2022 exploration program at its Quesnel Nickel-Magnesium-Talc project, including elevated nickel and chromium concentrations starting at surface.
Finally, Calibre Mining (CXB) has uncovered bonanza-grade gold at The Limon Complex in Nicaragua.