TSX Retraces on Lower Oil and Gold Prices
The TSX has been one of the best performing stock exchanges in 2019. On April 23, the TSX hit a record intra-day high and record close. By the end of the first week in May, the TSX had advanced 16.0% year-to-date. Despite broad-based investor optimism though, the TSX is showing signs of weakness as commodity prices weigh on the energy and materials sector. Fears that President Trump will make good on new tariffs against China is also rattling the markets.
The TSX has been having a great year. On April 23, it hit a new intra-day record high of 16,672.71 and finished the day out with a record close of 16,669.40. The record levels were fuelled by both strong oil prices, decent Canadian economic data, and strong U.S. economic data. But every investor knows that equities and exchanges eventually take a breather.
Which is exactly what the TSX is doing. On Friday May 3, eight trading days after hitting a record high, the TSX closed at 16,494.43; that’s 175 points since April 23.
What once helped propel the TSX higher is now becoming a drag. The TSX has been sliding because of growing weakness in the energy, materials, healthcare, and industrials sector.
The energy sector is facing pressure on lower oil prices and growing stockpiles of crude in the U.S. Materials are down with silver and gold trading at their lowest levels since December 2018 and copper is showing signs of weakness. And the Healthcare sector is facing headwinds with a number of cannabis stocks reporting less than stellar results.
On top of that, Industrials have taken a hit with scandal plagued SNC-Lavalin (TSX:SNC) erasing 10-years of gains. The company announced that its first quarter revenues fell to $2.36 billion and reported a loss of $17.3 million. It also said it is shutting down operations in 15 countries.1 Management may be optimistic about its future but investors and analysts, not so much.
Meanwhile, Bombardier (TSX:BBD) stock hit the skids after it slashed its 2019 revenue and earnings forecast and cut its 2020 forecast.2 The manufacturer announced it is selling off factories in Northern Ireland and Morocco and consolidating its aerospace business into a single unit. The big question is, who will buy the Montreal-based company’s factories?
TSX Tumbles as Trade Tensions with China Intensify
Then there is President Trump and his ongoing feud with China. Trump, annoyed that trade talks with China are going too slowly between the world’s two largest economies, tweeted on Sunday, May 5 that he would hit China with tariffs on virtually all imported goods, starting Friday May, 10. Not only that, he would raise tariffs to 25% from 10%.
That news wreaked havoc on the markets, with futures on the Dow Jones Industrial Average falling over 500 points. At the opening bell on Monday, the Dow Jones tumbled by 450 points, with the S&P 500 down 1.55% and the Nasdaq down 2.2%. Chinese markets plunged by six percent. The TSX, meanwhile, slipped roughly 1%.
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All of the above factors are weighing down on the TSX. The index is still up for the year, but the last couple weeks have shown just how easily the tide can turn for equities, individual sectors, and an entire index. Regardless of what’s happening on Bay Street, the trading professionals at Learn-To-Trade.com can teach you how to trade with confidence and profit more consistently.
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- “SNC-Lavalin reports first quarter results for 2019”, SNC-Lavalin Group Inc., May 2, 2019; https://www.snclavalin.com/en/media/press-releases/2019/02-05-2019.
- “Bombardier Reports First Quarter 2019 Financial Results and New Strategic Direction for Aerospace, the formation of Bombardier Aviation”, Bombardier, May 2, 2019; https://ir.bombardier.com/en/press-releases/press-releases/82794-bombardier-reports-first-quarter-2019-financial-results-and-new-strategic-direction-for-aerospace-the-formation-of-bombardier-aviation.
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