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By John Partridge
The Globe And Mail
Report on Business
Friday, September 8, 2006
Another day, another dollar -- down the drain.
Slippery oil prices and fears that the U.S. central bank may again feel driven to start jacking up interest rates greased the skids under Canadian equities yesterday for the second session in a row.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “I've got the suspicion that we’re in for a little more of the downside for the next while.”
After taking its steepest plunge of the summer on Wednesday -- a 1.63-per-cent drop to 11,999.7 -- the benchmark S&P/TSX composite index fell as far as 11,846 yesterday before closing at 11,895, down 104.7 points.
And as on the day before, the index was led down by energy and materials stocks.
Two revelations sent crude prices to their lowest point since April: news that U.S. gas inventories built up more than expected last week, topping year-earlier levels, and the statement by energy giant BP that it hopes to get its huge Prudhoe Bay oil field fully back on stream by the end of next month.
The contract for oil for delivery next month fell as far as $66.76 (U.S.) a barrel on the New York Mercantile Exchange, before closing at $67.32, down 18 cents from Wednesday, and down more than 14 per cent from the record high of $78.40 it hit July 14.
"It's getting pretty ugly out there," said Patricia Croft, vice-president and chief economist at Phillips Hager & North Investment Management Ltd. in Toronto. "I think it's all about expectations, and the big drop in crude oil, I think, has really shaken the market. People are beginning to question what was a one-way bet [that] crude oil prices would stay firm and we'd have that leadership ensconced firmly in our marketplace."
The market was also shaken, Ms. Croft said, by revised U.S. unit labour costs for the second quarter that were published Wednesday and showed a year-over-year gain of fully 9 per cent. This has revived questions as to whether the "inflation-vigilant" U.S. Federal Reserve Board will decide to raise interest rates again, after all.
This could crimp already slowing economic growth still further in Canada's largest export market, and together with faltering oil prices, "that's really a double whammy for a [stock] market like ours," Ms. Croft said.
U.S. stock markets also fell yesterday, although both the Nasdaq composite and the S&P 500 rallied above Wednesday's close for a short period early in the afternoon. The S&P 500 finished the day at 1,294.02, down 6.2 points, the Nasdaq at 2,155.29, down 12.5 points, and the Dow Jones industrial average at 11,331.4, down 74.7 points.
Out in Vancouver, meanwhile, one money manager was waving a caution flag. "I guess we've got a few trepidations out there," said Adrian Mastracci, portfolio manager at KCM Wealth Management Inc. "If oil is going up, we love the stocks. If oil is going down, we worry about earnings."
Canadian investors have enjoyed a "good run," in the past few years, Mr. Mastracci said, noting the S&P/TSX climbed 24.3 per cent in 2003, 12.5 per cent in 2004, 21.9 per cent last year and, including the impact of the worldwide May-June plunge, 6.8-per cent so far in 2006.
He figures, however, that things will get worse before they get better, and has been advising clients to lighten up on equities a little and park the money in fixed income for the next while. "I've got the suspicion that we're in for a little more of the downside for the next while," he said.
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