Fed chairman Ben Bernanke gave his thoughts on the U.S. economy.

Back to the future

RTGAM




Even rising gold and oil prices were not enough to rescue Canadian stocks from the widespread downturn that whacked North American stocks on Thursday, when Fed chairman Ben Bernanke gave his thoughts on the U.S. economy.


Needless to say, those thoughts were not exactly upbeat and they underlined the growing feeling among observers that a U.S. recession is unavoidable, regardless of the occasional tidbit of good news - such as strong Japanese growth - that hints otherwise.


"A recession in the U.S. seems to be a done deal," said Tobias Levkovich, chief U.S. equity strategist at Citigroup, in a note. "There seems to be a very high probability of economic recession, with slipping jobs data, limited credit availability, weak retail chain-store sales reports, and a surprising fall-off in the ISM non-manufacturing index."


His one shot of hope? Given that the S&P 500 fell about 19 per cent from its October 2007 high to its January 22 low - which is consistent with the declines associated with the average recession - there is a reasonable chance that most of the damage to the stock market has already been done. That is, if this is an average recession that is brewing, which is the subject of some debate.


In Canada, the peak-to-trough decline was 17 per cent. However, the S&P/TSX composite index has since rebounded nearly 9 per cent from its trough in January, which means that stocks are either in the midst of a recovery or about to take a second downward dip.


Investors on Thursday appeared to be betting on another dip. The Canadian benchmark index closed Thursday at 13,208.03, down 74.27 points or 0.6 per cent. Crude oil shot up to US$95.27 a barrel in New York, up $2, and gold rose to $908.30 an ounce, up $1.70 - but the commodities boost did little for most areas of the market, despite Canada's exposure to them. Of the 254 stocks in the index, 144 fell, led by financials.


In the United States, the Dow Jones industrial average tumbled 175.26 points or 1.4 per cent. It closed at 12,376.98, dragged down by 29 of the 30 stocks that make up the blue-chip index. The broader S&P 500 closed at 1348.86, down 18.35 points or 1.3 per cent, with 444 of the 500 stocks down for the day.




Copyright 2001 The Globe and Mail