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Title: Toronto Stock market takes biggest one-day plunge since tech sector tumbled
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Published: Jan 21, 2008
Author: http://canadianpress.google.com/article/
Post Date: 2008-01-21 23:32:08 by tom007
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Views: 73
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Toronto Stock market takes biggest one-day plunge since tech sector tumbled 10 hours ago TORONTO - The Toronto stock market was slammed with its biggest single-day loss since the tech bubble burst seven years ago as nervous investors worried that the Canadian economy will feel the ripple effects of a looming recession in the United States. The 605-point drop - 4.75 per cent of the market - trimmed more than $90 billion in value from the TSX. That's on top of a 6.6 per cent dive last week that had already wiped out all of the market's gains for 2007. Since Canada's dominant market hit a record high in late October, the TSX has lost more than $300 billion, or 17 per cent of its value, hurting every Canadian who holds stocks either directly or in mutual funds or pension plans. To market insiders, we are on the cusp of a bear market, a long period of falling prices characterized by investor pessimism. Usually a bear market begins after a 20 per cent drop from their recent peaks. "This is very close to official or technical bear territory," said Doug Porter, deputy chief economist with BMO Capital Markets While Monday's violent market selloff has got Bay Street worried, it could also impact the broader economy, especially if Canadians suddenly start feeling poorer and decide to cut their spending on everything from cars and houses to appliances, clothing and restaurant meals. And if corporate Canada starts cutting back on capital spending because companies see tight money, slower growth and rising layoffs ahead, that could further erode the already weaker Canadian economy, especially in the already battered manufacturing heartland of Ontario and Quebec. "Financial markets around the globe, and equity markets in particular, seem to be increasingly pricing in the recession scenario in the U.S," said Craig Wright, chief economist at RBC Financial Group. "Sentiment is so negative right now that anything that could be interpreted as positive news gets ignored and anything that's negative gets exaggerated." The last time the market fell so far was a 6.5 per cent drop in February 2001, when the tech sector deflated and Nortel Networks (TSX:NT) shares rapidly lost value after the company announced 4,000 job cuts and rocked the markets with a profit and revenue warning. The TSX Venture Exchange, which trades smaller capital companies, closed 8.7 per cent lower Monday - a loss of 227.69 points to 2,390.52. "The kind of percentage declines we're hearing about on a day-to-day basis will be fairly closely reflected in a lot of mutual fund valuations," said Porter. "When people see their statements for the end of the quarter they are going to see fairly significant declines unless we get a big rebound over the next couple of months." Porter said that even if markets edge upwards after this decline, a recovery won't happen overnight. "Usually the nature of downturns in the market are that declines happen very quickly and comebacks are slow and methodical." In the past, Canadian markets had been cushioned somewhat from troubles in the United States because the Toronto Stock Exchange could depend on blue-chip companies such as banks, oil and gas producers and metals miners. Their share prices had risen sharply because of soaring demand for commodities from Asia's rapidly growing economies. On Monday, oil prices fell to below US$90 a barrel and have now retreated more than US$10 from a record above US$100 a barrel a few weeks ago on worries a flagging U.S. economy would dampen resource demand. Meanwhile, the Canadian dollar fell more than half a cent to close under 97 cents US on Monday, its lowest point in four months. Monday's selloff on the TSX came despite the unveiling of a US$145 billion economic stimulus plan Friday by president George Bush and the fact that American markets were closed for the Martin Luther King holiday. The major worry is that a widespread slowing of the U.S. economy, with the possibility that it could turn into a recession, could spill over into Canada and put the brakes on an economy that has so far weathered global economic storms pretty well. "Overlay that with the weakness we're seeing in financial markets in particular... and that argues for a slower growth environment, which opens the door for all sorts of risks including deterioration in the labour market," said Wright. Economists have suggested that a U.S. housing slump sparked by a credit crisis linked to the collapse of the subprime mortgage industry will force consumers to slash spending. That could lead to a slowdown in new hires and could eventually lead to layoffs as companies adjust to tightening purse strings. "My biggest concern is what a real slowdown in the U.S. will do to various sectors" in Canada, said Porter. Already the weakening U.S. economy has cut exports of everything from auto parts and vehicles to lumber, concrete, building materials and finished goods. "You're looking at whoever exports to the U.S. especially (being) affected by a big drop in U.S. demand." Asian and European stock markets were also down sharply in Monday trading, more signs that investors around the world are not optimistic that the Bush stimulus plan is enough to stop a recession. Investors have strong doubts about the plan to shore up the U.S. economy, which has been battered by severe problems in its housing and credit markets. Critics have questioned how much impact the package can have on a battered market, which at this could would only be "curbing the depth of the recession, not averting it," according to a note from David Wolf, head of Canadian economics and strategy at Merrill Lynch Canada. Losses bled into commodities prices as the gold bullion contract slid $16.30 to US$865.40 in electronic trading on the Nymex. The February crude oil contract was $2 lower to $88.57. When markets are lower, "safe haven" investments like gold usually rise in price, though that seems to be the opposite of what's happening this time, said Bob Tebbutt, vice-president of risk management at Peregrine Financial. "When people are terribly nervous they generally go to the gold market and boost it," he said. "When you see concerns over inflation or war or just plain concerns over the economic picture, the gold market tends to show good strength." Tebbutt said the recent market reaction is composed of "irrational" behaviour motivated by fear and uncertainty. While there was no daily trading in New York, futures contracts still logged major losses, pointing to a drastic selloff on Tuesday when the market reopens. On Friday, the Dow Jones industrials moved down 59.91 points to 12,099.3, bringing the total loss for the last week to 507 points or four per cent. The Nasdaq composite index declined 6.88 points to 2,340.02 while the S&P 500 index declined 8.06 points to 1,325.19. Last week, the TSX ended with the deepest losses of all the major North American markets and among its biggest weekly declines in seven years. At the end of December, the value of all the shares traded on the TSX senior market was more than $1.9 trillion.
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#1. To: tom007 (#0)
Right. Sell.
www.coasttocoastam.com/ Mon 01.21 >> First Hour: Trendcaster Gerald Celente comments on the fall of world financial markets.
Tebbutt said the recent market reaction is composed of "irrational" behaviour motivated by fear and uncertainty.
#2. To: Cynicom (#1)
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