The MSCI world index hit a seven-month low, and the price of crude oil dropped to a four-year low as worries about weak worldwide economic growth continue to take a toll on investor confidence.

The American S&P 500 index and the TSX Canadian index both fell over 3% for the week.

Investors have rushed to reduce big bets in stocks and other risky assets after benefiting from a major world equity markets that has only seen brief interruptions in the past three years.

A few choice quotes from portfolio managers and investment strategists on the recent volatility:

“It smells like there is a high degree of involvement from systematic traders, rather than fundamental traders. The magnitude of the move has been disproportionate to the change in the fundamentals,” – Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management.

“Economic data continues to be favorable and consistent with 3% growth in the U.S., which we have been calling for the past two years. As long as this growth continues, we expect that any corrections will be less severe than they usually are during bull markets. However, we do expect interest rate increases in the first half of 2015, and depending how fast they happen, and what’s going on with valuations, there will likely be a more substantial correction in equities and possibly corporate bonds. This should not be taken as the beginning of a bear market, but as a correction, and buying opportunity, within a continuing bull market.” – Dan Batastic, portfolio manager with IA Clarington.

“Many investors and “experts” have been predicting an equity market correction. We believe the recent decline is more of a “head fake,” largely driven by fears of a looming interest-rate hike. What helps us sleep at night is our belief that the U.S. economy has not reached a full-fledged expansion. The majority of key attributes suggest we are still in the recovery stage. Cycles typically end with an extended period of rising interest rates, rising inflation and high credit growth (leverage).” – David Taylor, portfolio manager with IA Clarington.

Later this month, the Federal Reserve is set to wind down the asset purchase program that has been credited with boosting markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for the Fed program and speculate that they will have to launch its own sovereign bond-buying program, styled on the Fed’s quantitative easing.

 

 
THIS WEEK IN MARKETS (as of October 10, 2014)

  • The TSX closed at 14227, down -563 points or -3.81% over the past week. YTD the TSX is up 4.44%.
  • The DOW closed at 16544, down -466 points or -2.74% over the past week. YTD the DOW is down -0.20%.
  • The S&P closed at 1906, down -62 points or -3.15% over the past week. YTD the S&P is up 3.14%.
  • The Nasdaq closed at 4276, down -200 points or -4.47% over the past week. YTD the Nasdaq is up 2.37%.
  • Gold closed at 1223, up 28.00 points or 2.34% over the past week. YTD gold is up 1.58%.
  • Oil closed at 85.53, down -2.41 points or -2.74% over the past week. YTD oil is down -13.26%.
  • The USD/CAD closed at 1.121138, down -0.0045 points or -0.40% over the past week. YTD the USD/CAD is up 5.45%.

Sources: Dynamic Funds, IA Clarington, National Post