TLM and QEC Houses

Investors look down

RTGAM






If the stock market roared back to life last week on relatively little good news, it may seem fitting to some investors that the market fell back into the sick ward on Monday on relatively little bad news.


But what a fall it was: Canada's S&P/TSX composite index closed at 8406.09, down 864.41, points or 9.3 per cent - the most severe one-day downturn this year in percentage terms, and the worst since the crash of 1987. In the United States, the Dow Jones industrial average closed at 8149.09, down 679.95 points, or 7.7 per cent. The broader S&P 500 closed at 816.21, down 80.03 points, or 8.9 per cent.


The U.S. indexes had been down throughout the day, but were able to contain their losses at relatively modest levels (emphasis on "relatively") soon after the National Bureau of Economic Research declared that the U.S. economy had fallen into a recession in December, 2007.


Investors were also treated to another bad reading on manufacturing activity from the Institute for Supply Management, but one that was not widely out of whack with economists' expectations or with the previous month.


Meanwhile, the far harsher Canadian selloff occurred even after Statistics Canada reported that the economy expanded at an annualized rate of 1.3 per cent in the third quarter - a better clip than economists had expected.


In all probability, the reports probably had little bearing on investors, since they all look backward. If investors were going to do any backward gazing, it was to look at the heady gains of the previous week, when markets enjoyed their best rallies since the 1930s.


Now, Monday's losses have erased all of the Dow's gains over the previous four trading days. In a single day, Citigroup Inc. fell 22.2 per cent, Bank of America Corp. fell 20.9 per cent, General Electric Co. fell 9.7 per cent and Microsoft Corp. fell 8 per cent. All 30 stocks in the Dow fell. At the S&P 500, an amazing 498 stocks fell. (The two winners: Rohm and Haas Co. rose 3.5 per cent and Autonation Inc. rose 0.1 per cent.)


Monday also erased all of last week's gains for the S&P/TSX composite index, which was hit particularly hard by declining commodity prices. Among financials, Royal Bank of Canada fell 8.7 per cent and Manulife Financial Corp. fell 14.8 per cent. Among energy stocks, Suncor Energy Inc. fell 16.4 per cent and EnCana Corp. fell 12.8 per cent after crude oil tumbled to $49.28 (U.S.) a barrel, down $5.15.


Gold stocks were no help, after the price of gold fell to $776.80 an ounce, down $42.20. Goldcorp Inc. fell 16.7 per cent and Barrick Gold Corp. fell 13.4 per cent.

Copyright 2001 The Globe and Mail