TSX falls: lower commodities hit resource stocks, bond yields punish utilities

TORONTO – The Toronto stock market closed firmly in the red Monday, led by declining oil and mining stocks as economic concerns persuaded investors to cash in some profits from last week’s sharp run-up.

The S&P/TSX composite index lost 148.9 points to 12,588.02, giving back most of last week’s resource sector-led gain of 1.5 per cent.

“There’s still pessimism and evidence that the slowdown in China is permanent and so you’re going to see money managers taking profits after a run like we’ve seen,” said Kash Pashootan, vice-president and portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company.

Utilities were also a major drag as U.S. bond yields continued to head higher.

The Canadian dollar erased early gains, moving down 0.03 of a cent to 96.69 cents US amid falling commodity prices.

U.S. indexes added to losses racked up last week as the Dow Jones industrials was 70.73 points lower to 15,010.74, the Nasdaq composite index dropped 13.69 points to 3,589.09 while the S&P 500 index was down 9.77 points to 1,646.06.

The major event for markets this week is the release Wednesday of the U.S. Federal Reserve’s minutes from its most recent meeting at the end of last month. Investors hope to get a better idea of the pace at which the Fed will start to wind up a key measure of economic stimulus next month.

Recent economic data and public statements by Fed policy-makers have reinforced the point of view that the central bank will begin tapering its US$85 billion a month in bond purchases as early as September. The policy, which is intended to lower interest rates to shore up the U.S. recovery, has also been credited for a strong rally on many global markets.

Worries about Fed tapering helped push the Dow industrials down 2.2 per cent last week but Pashootan observed that there’s another reason.

“U.S. stocks are simply becoming expensive,” he said.

“You look at where bond yields are headed, you look at tapering, you look at the result of rising rates and you combine all of that with valuations that are considerably more expensive than they were six months ago and that would all lead to us positioning . . . (ourselves) to not be surprised to see the U.S. markets here soften by 10 per cent.”

Last week’s decline still left the Dow up 15 per cent year to date.

Speculation about Fed tapering continued to send U.S. bond yields higher, with the benchmark 10-year Treasury at a two-year high of 2.88 per cent Monday, up 0.05 of a point from Friday and up well over 100 basis points since early May. The rise followed a 24.5 basis point rise last week.

Rising bond yields have been bad news for interest-sensitive stocks such as utilities and the TSX utilities sector led decliners Monday, down almost three per cent. Algonquin Power and Utilities (TSX:AQN) gave back 30 cents to $6.64.

The mining sector fell 2.44 per cent as September copper dipped three cents to US$3.33 a pound. Teck Resources (TSX:TCK.B) fell 59 cents to C$28.11.

The September crude contract on the New York Mercantile Exchange was down 36 cents to US$107.10 a barrel and the energy sector was down 1.78 per cent. Canadian Natural Resources (TSX:CNQ) declined 83 cents to C$30.67.

The gold sector lost about 1.44 cent as December bullion dropped $5.30 to US$1,365.70 an ounce. Kinross Gold (TSX:K) faded 22 cents to C$5.91.

Outside of the resource sector, financials were also a major drag, down 0.87 per cent with Manulife Financial (TSX:MFC) down 45 cents at $17.21.

The industrials sector moved down 0.9 per cent and Bombardier Inc. (TSX:BBD.B) shares fell eight cents to $4.79 after a transportation analyst said delays in the first test flight of the company’s new CSeries passenger jet will likely push its entry into commercial service into early 2015. Cameron Doerksen of National Bank Financial says such a delay for the much-anticipated jet will not be “overly material.”

BlackBerry (TSX:BB) stock dropped 16 cents to $10.70 as new study said the smartphone maker is losing market share in most countries and regions, even in traditional strongholds such as South Africa and Indonesia. U.K.-based Juniper Research says Android devices have overtaken sales of Apple’s iPhone globally, helped by low prices in developing countries.

In other corporate news, American retailer Saks released its financial report a day early and like Wal-Mart, Macy’s and Nordstrom last week, disappointed Wall Street. Saks’ loss of US$19.6 million was even deeper than analysts had expected.

Saks didn’t hold a conference call because it’s being acquired by Hudson’s Bay Co. (TSX:HBC) and it gave no outlook. On the TSX, HBC stock rose six cents to C$17.34.

J.C. Penney, Target, Gap, Home Depot, Best Buy, Barnes & Noble, Staples and Sears all report quarterly results this week.