“God Gives Every Bird His Worm But He Does Not Throw It Into The Nest” -P.D. James

 

Markets Tumble With Oil Price

The Toronto Stock Exchange’s S&P/TSX composite index ended down 173.22 points Friday at 13,731.90. It lost more than 5% on the week, its biggest week-long slip since September 2011. The Dow Jones industrial average closed more than 300 points lower, its worst loss in two months. Traders were discouraged Friday by another slump in the price of oil and more signs of weakness in China. The Dow dropped 315 points, or 1.8%, to 17,280. The plunge caps the index’s first losing week since October. The Standard & Poor’s 500 fell 33 points, or 1.6%, to 2,002. The Nasdaq slid 54 points, or 1.2%, to 4,653. Oil’s fall has added to worries about global demand and raised concerns about earnings for some energy companies, with year-end tax selling putting more pressure on the sector.

The S&P energy sector was down 1.3%. It is down almost 16% this year, the worst performing of 10 S&P sectors. The S&P 500 index was down 2.8% for the week. Disappointing data that suggested China’s economy softened in November pushed the materials sector down 2.3%, making it the worst-performing S&P sector on the day. The drop in oil and weakness in China overshadowed strong U.S. consumer sentiment, which hit an eight-year high. Some investors hope declining gas prices will boost consumer spending enough to offset the energy sector’s woes. The consumer discretionary sector was one of few the 10 S&P sectors that turned positive and was last up 0.2%.  “It’s not much but I’ll take it,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.  “The good news is that this is a tailwind for the consumer. That’s a positive that’s being ignored.”

 

Bank of Canada Concerned About Household Debt

The Bank of Canada considers household debt as one of the weak spots in the country’s economic armour. The central bank released its semi-annual financial system review December 10. However, the report said despite the red flags the economy continued to show signs of a “broadening recovery” and its overall assessment of Canada’s financial stability remains unchanged since the summer. “We judge that the probability of an adverse shock has eased since June Bank of Canada governor Stephen Poloz said in a statement. “This mitigates our observation that some financial vulnerabilities appear to be edging higher.”  In addition to rising consumer debt, the review warned of the potentially overvalued housing market, increased risk taking in financial markets and emerging threats, such as weakening commodity prices and the plunging price of oil. The bank also laid out possible pitfalls that threaten Canada’s position, such as a sudden rise in long-term interest rates, increased financial stress in Europe and China, and a sharp correction in house prices. It reiterated, however, its expectation that Canada’s housing market will have a soft landing. The Bank of Canada suggested the housing market may be overvalued by 10% to 30%.

The bank’s report cautioned that Canada’s household debt-to-income ratio is near a record high, conditions that may have been partly fueled by stiff competition among lenders. The situation, it said, may have encouraged some Canadians to borrow too much and led financial entities to lend to riskier clients. The review said 12% of Canadian households as “highly indebted.” The bank said this percentage has been steady in recent years, but is nearly double the level in 2000. It also said these households carry about 40% of the country’s overall consumer debt load.

 

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Market Update as of December 12 2014

The TSX closed at 13732, down -742 points or -5.13% over the past week. YTD the TSX is up 0.81%.

The DOW closed at 17281, down -678 points or -3.78% over the past week. YTD the DOW is up 4.25%.

The S&P closed at 2002, down -73 points or -3.52% over the past week. YTD the S&P is up 8.33%.

The Nasdaq closed at 4654, down -127 points or -2.66% over the past week. YTD the Nasdaq is up 11.42%.

Gold closed at 1223, up 30.00 points or 2.51% over the past week. YTD gold is up 1.58%.

Oil closed at 57.47, down -8.18 points or -12.46% over the past week. YTD oil is down -41.72%.

The USD/CAD closed at 1.157916, up 0.0143 points or 1.25% over the past week. YTD the USD/CAD is up 8.91%.

 

Sources: Bloomberg;  globeadvisor; Investment Executive; advisor.ca