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Canadian stocks hit a record high six weeks ago, but have been on a downhill run ever since as nervous investors act on growing worries about deteriorating global conditions and their debilitating effect on demand for Canada’s energy and other resources.
When they returned on Tuesday from the Thanksgiving holiday, traders drove down the benchmark Canadian index 190.7 points, or 1.3 per cent, to 14,036.68. The losses mean the Toronto stock market has now fallen 10.4 per cent since the start of September. Crossing the 10-per-cent threshold signals a market correction and puts the TSX halfway down the path to a full-fledged bear market. This is a troubling milestone, because if stocks continue their slide, it will put a severe dent in the value of individual investments as well as the mutual and pension funds that Canadians count on for retirement.
The list of global stresses is long, including a slowdown in China, a dramatic weakening of the once strong German economy, deepening woes elsewhere in Europe, increased strife in the Middle East, and the spreading Ebola scare. And they do not bode well for Canada, because they would force it to become more reliant on the United States, the one major economy still expanding.
If world energy prices keep dropping from weaker demand and a global glut caused partly by a surge in U.S. production that has sharply reduced imports to the United States, the effects will be felt not only in Alberta but across the Canadian economy.
Producers, bankers and investors will turn more cautious and could put their money elsewhere, delaying large resource and infrastructure projects not yet under way. This would hit manufacturers of equipment and materials, as well as engineering, construction and service companies. If the U.S. government follows the advice of its oil experts and allows the export of its burgeoning supplies of crude, that would put even more pressure on a suddenly vulnerable Canadian energy sector.
The cheaper loonie that stems directly from the global resource price squeeze would make Canadian manufacturing more competitive, but it could not replace the crucial growth engine that energy has become.
Energy stocks have plunged nearly 19 per cent since the end of August as the price of crude oil has tumbled to its lowest levels in more than two years on fading optimism for the global economy.
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