January 14, 2014

The patience of Canadian stock market investors is being tested (Part 1)

The three major U.S. stock market indices ended 2013 with a fireworks display.

The DJI (30) crossed above 16,000 and the S&P 500 broke through the 1,800 barrier. Both indices recorded new all-time highs on the final day of the year.

On Dec. 31, NASDAQ reached its loftiest perch (4,177) in 13 years. Another 12% increase will see NASDAQ equal its all-time peak (4,696) of February 2000.

That leaves the performance of the Toronto Stock Exchange (TSX) to lament and examine.

The TSX also gained its highest point of the year on 2013’s final trading day.

But its level of 13,622 was 7% below May 2008’s peak of 14,715. The TSX has a long way to go before bettering the 14,000 benchmark again, let alone testing a new historical landmark at 15,000.

2013’s year-over-year closing performances for all four major indices were as follows: NASDAQ, +38%; the S&P 500, +30%; DJI, +27%; and TSX, +10%.

Over a longer time frame, dating from February 2009, when they each recorded their most recent troughs, the percentage changes were: NASDAQ, +200%; the S&P 500, +150%; DJI, +135%; and TSX, only +68%.

The TSX has been mainly flat for the past four years. The explanation lies in commodity prices which have also, on balance, been stable since early 2010.

The composition of the TSX index is heavily weighted towards raw materials providers.

The all-items commodity price index calculated by the Bank of Canada (BOC) is +59% versus its recessionary trough, but -30% when compared with its pre-recession peak.

The major contributor to the overall malaise in the total commodities index is the energy sub-sector.

The BOC’s energy commodities sub-index — comprised of natural gas, oil and coal — currently sits about 40% below its pre-recession peak.

Natural gas prices remain depressed as supply from new U.S. sources continues to accumulate. This is the payoff from the expanded adoption of “fracking” technology.

As for the global oil market, generally weak world trade has been keeping a lid on prices.

Ready availability will likely continue to prevail for some time as three major supplier nations are working to increase output.

The Mexican government is opening up energy investment to the private sector.

Iran, through an acceptance of limits on its nuclear ambitions, is working towards an easing of sanctions that will permit a resumption of export sales to the West.

And Libya is striving to restore its delivery system after suffering damage during the revolution that ousted former strong-man, Muammar Gaddafi.

To be continued in Economy at a Glance Part 2.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

Stock exchanges – performances of key indices – December 31, 2013

Data sources: NYSE, S&P, NASDAQ, TSE and Reuters/Table: Reed Construction Data - CanaData.

Print | Comment