Stock market rout continues

Stock market rout continues

STEVE LADURANTAYE
Thursday, November 06, 2008
North American markets racked up deepening losses Thursday, as weak earnings and bleak economic data reminded investors that hard times are ahead regardless of who won the U.S. election.

“The markets seemed to shrug off the conclusion of the U.S. presidential election to continue the fickle nature of the moves we have seen recently,” said Ian Griffiths, a trader at CMC Markets. “There seems to be no respite in the volatility.”

The Dow Jones industrial average ended 4.85 per cent lower, or 443.48 points, to 8,695.79.

On Wednesday, the blue chip index posted its worst post-election session in history, plummeting by 5.1 per cent, or 486.01 points, as investors worried the financial crisis would worsen by the time President-elect Barrack Obama takes over the White House in January.

The broader S&P 500 lost 5.03 per cent, or 47.89 points, to 904.88. In Toronto, the S&P/TSX fell 3.36 per cent, or 331.79 points , to 9,555.41, as oil fell $4.53 (U.S.) to $60.77.

“Every day we are seeing wild swings in either the markets, oil or currency,” said Sloan Levett, the director of wealth management at Fuller Landau LLP in Toronto. “On any given day, at least one of those things is moving wildly.”

A slew of companies reported disappointing results, including Manulife Financial, which saw profit fall by $574-million (Canadian). In the U.S., Cisco Systems warned a soft economy could cut its sales by 10 per cent in the coming months.

Meanwhile, the European Central Bank cut its key lending rate by 50 basis points, to 3.25 per cent, while the Bank of England slashed its rate by 1.5 percentage points, to 3 per cent. Stocks temporarily rallied, but slunk back as investors continued wary of owning equities on the eve of a likely recession.

“There has been a very marked deterioration in the outlook for economic activity at home and abroad,” the Bank of England reminded investors as it cut its rate.

In economic news, new claims for unemployment insurance in the United States dropped slightly last week, the Labour Department reported Thursday morning. However, the number of people receiving benefits reached its highest level in 25 years.

Initial claims for jobless benefits dropped by 4,000 to a seasonally adjusted 481,000 for the week ending Nov. 1, above estimates of 480,000. Any figure above 400,000 is seen as recessionary. Meanwhile, 3.84-million people continued to get unemployment insurance – the highest level since 1983.

“The real juice of this report lies within the continuing claims component,” commented TD Securities economics strategist Ian Pollick. “ While we know that a regulatory-driven change in early August permanently elevated the level of the data, the massive jump from the prior week continues to suggest that it is taking much longer for people to find jobs, which does worry us.

There was some unexpected good news in Canada, as the value of building permits jumped 13.4 per cent in September, and non-residential construction rose 41.7 per cent. Economists had expected a 1 per cent drop in the value of building permits.

“Looking closely at this data, it is clear to see that the housing sector remains under pressure and it is non-residential activity that continues to prop up building activity,” TD Securities senior economics strategist Charmaine Buskas said. “As Canada's economy continues to unwind, that, too, will start to give way to weaker activity. But for now, building activity will remain resilient, thanks to the lopsided additions suggested by non-residential permitting activity.”

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