Jamie Sturgeon | Financial Post |The bear awoke on the Canadian market yesterday as tumbling share prices lopped 2.9% off the main stock index in Toronto.
Led by heavy losses in financial stocks still reeling from the unprecedented developments on Wall Street this week, Canadian shares finished the day in official bear territory -- defined as a retrenchment of 20% or more off the last high. That was back on June 6, when soaring commodity prices propelled the S&P/TSX composite index to 15,154 points.
Since then, markets have been rocked by the loss of confidence in American banks, taking Canadian financial stocks along to finally break the bull market's back. Sun Life Financial Inc. (SLF/TSX), for example, fell to its lowest level in four years after admitting it will take a charge on its exposure to American International Group Inc. (AIG/NYSE).
Technology stocks also suffered as Nortel Networks Corp. (NT/TSX) cut its third quarter outlook due to an "expanding economic downturn." The prognosis prompted the beleaguered telecom equipment maker's shares to fall to their lowest level in a quarter century.
At the end of the carnage, the index stood at 11,877, bringing the weekly loss to more than 7% and the decline since the beginning of the month to more than 13%.
"The party probably went on a little bit too long and the TSX is going to be feeling a little bit of a hangover," Phil Flynn, senior trader at Chicago-based Alaron Trading Corp. said yesterday.
"It was one hell of a party though."
The plunge placed Canada alongside 23 other developed countries which have suffered a 20% bear market retreat this year, according to Bloomberg News.
The prospect of a sustained period of downward selling that typifies a traditional bear market holds negative implications for the broader economy, said Douglas Porter, deputy chief economist of BMO Capital Markets yesterday.
"The risk now is that with the market dropping ... it can act as a serious dampener on business confidence in this country as consumers and businesses respond to the financial turmoil."
Yet there is hope.
"It's not a normal bear market caused by normal things like earnings going down because there's a recession, or interest rates are going up so people are selling stocks so they can move money into bonds," said David Baskin, president of Toronto-based Baskin Financial.
"This is a particular situation caused by the financial abuses in the system that had to be cleaned out."
The unwinding of the financial crisis in the U. S. has shifted undue blame on Canadian banks, Mr. Baskin said.
As well, Canadian banks and insurance firms have largely avoided the financial maelstrom in the U. S., he said, and the group is on sound footing compared to its American counterparts.
Yet, with so much investor uncertainty on both sides of the border, Canadian banks alone won't be prompting a rally in stocks in the near future, Mr. Porter said.
"It would take a very brave person to say the coast is clear on that front. Sentiment will largely be driven by events south of the border."
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jasturgeon@nationalpost.com
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