TORONTO — Surging global COVID-19 infections and lagging U.S. stimulus talks sent North American stock markets lower to start the week with Canada's main index facing a broad-based decline led by energy.
"The tone in the markets here today is decisively risk-off," said Candice Bangsund, portfolio manager for Fiera Capital.
Weekend virus numbers were worrisome, particularly in the U.S. which hit record new daily cases and seven-day averages that surpassed the mid-July spike.
"A big part of what's worrying investors is, of course, the rise in cases and the potential for renewed restrictions on activity that would potentially weigh on the recovery," she said in an interview.
That's despite "fairly constructive" news on the vaccine front with Johnson & Johnson, along with AstraZeneca, restarting their late-stage trials following temporary halts and with AstraZeneca test results regarding immunity.
"There's been a lot of positive news on the vaccine front over the last several days but the markets have largely shrugged off that positive news and are focusing here on the near-term fiscal stimulus deliberations as well as the spike in COVID cases," Bangsund said.
The two factors are also prompting investors to crystallize some profits following market resilience up to October.
Bangsund said she believes markets will be predominantly focused on COVID until the numbers move decisively lower.
The S&P/TSX composite index closed down 224.53 points or 1.4 per cent to 16,079.55.
In New York, the Dow Jones industrial average was down 650.19 points or 2.3 per cent at 27,685.38. The S&P 500 index was down 64.42 points at 3,400.97, while the Nasdaq composite was down 189.34 points at 11,358.94.
All 11 major sectors on the TSX were lower, led by energy. It dropped 3.3 per cent on falling crude oil prices caused by a concern about demand with further lockdowns starting.
"On the supply side as well this is being compounded by higher output out of Libya, which is threatening the rebalancing narrative in the crude market and weighing on prices today," said Bangsund.
The December crude contract was down US$1.29 at US$38.56 per barrel and the December natural gas contract was up 5.8 cents at US$3.25 per mmBTU.
Cenovus Energy Inc. lost 8.4 per cent in heavy trading after announcing a $3.8-billion deal Sunday to buy Husky Energy Inc., whose shares gained 12 per cent.
The Canadian dollar traded for 75.75 cents US compared with 76.10 cents US on Friday.
Consumer discretionary, health care, financials and industrials were also down.
Air Canada shares dropped 6.1 per cent on rising COVID cases, bad news for airlines which have been dramatically hurt by a dwindling of travel demand.
Materials was one of the best performers on the day, giving the TSX a cushion to outperform U.S. markets.
The December gold contract was up 50 cents at US$1,905.70 an ounce and the December copper contract was down nearly four cents at US$3.09 a pound.
Stronger-than-expected third-quarter earnings results so far are failing to move markets.
The rest of the week will be busy with central bank rate moves in Canada, Europe and Japan, along with economic data such as economic output.
American GDP numbers for the third quarter that will be released Thursday are expected to be historically high at about 31.8 per cent annualized.
"The question remains, what happens in the fourth quarter, but that will hinge on the progression of the virus, the potential for further fiscal support. But so far, the U.S. economy is actually holding up quite well," said Bangsund.
Canadian GDP numbers for August are also expected to be strong with the third quarter tracking to be even better than in the U.S., she said.
But Bangsund said a lot of that good economic news is already factored into equity prices.
"If they surprise either positively or negatively by a wide margin, you could see some market movement. But I think there again, the biggest drivers for the markets this week will continue to be the fiscal negotiations and the progression of new virus cases."
This report by The Canadian Press was first published Oct. 26, 2020.
Companies in this story: (TSX:AC, TSX:CVE, TSX:HSE, TSX:GSPTSE, TSX:CADUSD=X)