Market Minute - Comments on this week’s market volatility
Arron Appleton, Investment Advisor
The sharp break in the stock market this week (July 24- July 27) reflects the rising unease with debt instruments (specifically sub-prime loans in the US) associated with housing and private equity takeovers. Also a factor is a currently volatile commodity market, unease in Canadian financials and rising worldwide inflation factors.
Also contributing to losses were raw material producers, after new home sales in the U.S. came in lower than expected, leading to concern about Canada’s largest export market.
On the TSX, the battered interest rate sensitive financial sector lost another one per cent with Scotiabank (TSX: BNS.TO) down $1.03 to $49.50 and Royal Bank (TSX: RY.TO) down 59 cents to $54.37.
The energy sector was down 0.4 per cent at mid-afternoon at midday while oil prices recovered from Thursday’s drop of almost US$1 per barrel. The September crude oil contract on the New York Mercantile Exchange gained $2.07 to US$77.02 a barrel. Petro Canada (TSX: PCA.TO) declined $1.14 to $56.18 and EnCana Corp. (TSX: ECA.TO) stepped up $1.15 to $64.22.
Consumer staples stocks were among the worst TSX performers with the sector down 1.75 per cent.
Another factor which caused undue stress on the mutual fund market this week was an overly high trading volume in the marketplace. When investors start to see selloffs they tend to react emotionally and think they need to shift in order to conserve or try to profit/gain in a down market (sometimes called a hedge). This type of trading only causes further problems to the small to middle size Canadian mutual fund investor. Mutual fund portfolio managers do not and cannot have the day trader type mentality. Portfolio managers must stick to the investment mandate and not react emotionally especially when they are dealing with combined assets in the hundreds of millions.
Canadian commodities and our top five Canadian bank stocks make up over 50% of the holdings in most Canadian equity mutual fund investments. The Canadian energy sector might be volatile at this particular point in time but it is in know way a bubble about to burst. You and I both know the Canadian energy sector will only continue to flourish. As for Canadian banks there is no debating whether or not they are profitable and are going to continue to make money. This is extremely positive for “us” the mutual fund investor.
This has been a market minute brought to you by Arron Appleton, Investment Advisor.
Stay positive – Stay confident – Stay invested!
Arron Appleton
Investment Advisor
FundEX Investments Inc.
c/o: Applestock & Associates Inc.
265 Yorkland Blvd., Suite 401
North York, ONÂ M2J 1S5
Bus: (416) 221-1313 ext. 4517
Fax: (416) 498-4667
