Stocks fall sharply on economic recovery worries, tech sector downgrade

Stocks fall sharply on economic recovery worries, tech sector downgrade
11:40 November 19, 2009, EDT.
(Canadian Press)


TORONTO - A fresh round of economic pessimism sent North American stock markets sharply lower late Thursday morning.

The S&P/TSX composite index fell 167.2 points to 11,485.5 amid a warning about the economic recovery and concerns about the financial and tech sectors.

The Dow Jones industrial average was down 161.4 points to 10,265.

The Canadian dollar gave back 1.21 cents to 93.62 cents US.

The Organization for Economic Co-operation and Development increased its forecast for economic growth in 2010 in its 30 member countries, but cautioned that any recovery will be slow and bumpy because of high unemployment. The Paris-based group said unemployment is not expected to peak until the end of 2010 or the beginning of 2011.

"There shouldn't be a surprise there: we've been talking for some time that we thought that the recovery - although under way - would be a bumpy one and we weren't looking for a V-shaped recovery or things to go up in a straight line," said Steve Uzielli, portfolio manager, director at ScotiaMcLeod Equity Advisory.

"This is not a normal recession so we shouldn't anticipate a so-called normal recovery."

The financial sector moved down 1.67 per cent after Manulife Financial Corp. (TSX:MFC) said it is raising $2.5 billion to restore the Toronto insurer's balance sheet. The company will issue about 132 million shares at $19 each. Its shares fell $1.50 to $18.68 while Sun Life Financial shares dropped $1.36 to $27.34.

Concerns about the financial sector also rose after Japan's biggest bank, Mitsubishi UFJ Financial Group, said it plans to raise US$11.2 billion to shore up its balance sheet.

The tech sector was down 0.75 per cent after Bank of America Merrill Lynch downgraded eight microchip companies, including Intel and Texas Instruments. The downgrade came amid worries that inventories are too high unless there's a sharp economic upturn.

In New York, Intel shares fell $1.12 to US$19 while Texas Instruments dropped $1.07 to US$24.68 while on the TSX, Research In Motion Ltd. (TSX:RIM) stepped back $1.24 to $62.01 after losing $1.28 Wednesday in the wake of a downgrade to market perform from outperform by BMO Capital Markets analyst Tim Long.

Commodity prices were lower as the December crude contract on the New York Mercantile Exchange lost $2.38 to US$77.20 a barrel. The energy sector lost 1.56 per cent with EnCana Corp. (TSX:ECA) down $1.15 to $56.70.

The gold sector was off 1.18 per cent as the December bullion contract on the New York Mercantile Exchange dipped $7.40 from Wednesday's latest record close to US$1,133.80 an ounce. Goldcorp Inc. (TSX:G) faded 68 cents to $45.68.

The base metals sector declined 2.06 per cent while December copper was down four cents at US$3.07 a pound. Teck Resources (TSX:TCK.B) gave back 72 cents to $36.07.

The TSX Venture Exchange moved 11.73 points lower to 1,382.33.

New York markets were also depressed as a private forecast of economic activity over the next six months edged up less than expected in October, signalling slow growth next year.

The Conference Board says its index of leading economic indicators rose 0.3 per cent last month. Economists polled by Thomson Reuters had expected a 0.5 per cent gain.

The Nasdaq composite index declined 49.93 points to 2,143.21 while the S&P 500 index fell 20.3 points to 1,089.5.

Investors also took in data showing that lost jobs, rather than subprime loans made during the housing boom, are now the main reason U.S. homeowners fall behind on their mortgages.

The Mortgage Bankers Association said fixed-rate home loans made to people with good credit accounted for nearly 33 per cent of new foreclosures last quarter. That compares with just 21 per cent a year ago, when high-risk loans made during the housing boom were the main reason for default.

At the same time, the proportion of homeowners with a mortgage who were either behind on their payments or in foreclosure hit a record-high for the ninth straight quarter.

In other news, struggling Internet company AOL Inc. plans to cut about a third of its workers if its planned spinoff from Time Warner Inc. goes through. That would amount to nearly 2,300 of the roughly 6,900 total employees. AOL hopes to trim annual costs by about $300 million.

Fertilizer company Agrium Inc. (TSX:AGU) said that stockholders of CF Industries Holdings had tendered 62 per cent of outstanding CF shares to its takeover offer as of its expiration Wednesday night. The offer is valued at $5.1 billion. Agrium shares dipped 62 cents to $59.41.

Units in Priszm Income Fund (TSX:QSR.UN) plummeted 37 cents or 30.08 per cent to 86 cents after it announced it had suspended its monthly distribution to unitholders in an efforts to increase its cash position. Priszm, which operates and franchises KFC, Taco Bell and Pizza Hut restaurants in Canada, said it needed cash to fund capital programs required by franchise renewals with Yum! Restaurants International.

In overseas trading, London's FTSE 100 index was off 1.47 per cent, Frankfurt's DAX was down 1.52 per cent while the Paris CAC 40 declined 1.92 per cent.

Earlier, Japan's Nikkei 225 stock average lost 1.3 per cent - its seventh straight day of decline as investors succumbed to jitters about a possible glut of new bank shares after Mitsubishi UFJ announced plans to raise capital.

Elsewhere, Hong Kong's Hang Seng fell 0.9 per cent.