TSX has worst day since Black Monday

Toronto - Canada’s top stock exchange fell fast and hard on Monday as investors reacted negatively to news of a brewing coalition government and, more importantly, a steep across-the-board drop in world commodity prices.

Canadian stocks ended the session deeply in negative territory, halting a six-day winning streak for the S&P/TSX composite index. The index plunged 864.41 points, or 9.32 per cent, to 8,406.21, eclipsing the steep fall on Nov. 20 that was the biggest percentage loss since Black Monday in October 1987. Monday’s points loss was the most ever.

TSX Venture exchange fell 27.23 points, or 3.55 per cent, to 739.12. The Canadian dollar closed down 53 basis points to 80.31 cents US.

The backdrop to trading on Monday was confirmation that the federal Liberals and NDP parties have decided to form a coalition government in order to topple the Conservative government.

Morgan Meighen & Associates chief portfolio manager Michael Smedley said investors are no doubt irritated by the prospects of another election, but ultimately he downplayed the effect it had on Monday’s sell-off.

“There is a lot of annoyance and disgust around the political antics in Canada. But on the other hand, it is a market retreat not unlike what we saw elsewhere (Monday), and the fall in commodities is the bigger factor in the downturn here in Canada.”

Taking its toll on energy stocks was crude oil, which fell below $50 US to close at $49.28 US a barrel, down $5.15.

The Organization of Petroleum Exporting Countries deferred a decision to reduce output for another two weeks until its regularly scheduled meeting on Dec. 17. OPEC said it wants more time to assess the impact of a 1.5-million barrel reduction agreed upon in October, but added that it will likely reduce output at the next meeting.

The S&P/TSX energy subindex was down 265.11 points to 2,056.71, with Canadian Natural Resources Ltd. down 14 per cent and Suncor Energy Inc. down 16 per cent.

Mining stocks were roughed up by falling base metals prices, which reacted to deteriorating demand, and gold prices, which fell $42.20 to $776.80 US an ounce. The losing combination sent the materials group down more than 269.33 points to 1,696.97.

Also weighing down the country’s main index were those investors taking profits from the six-day rally that saw the index rise 20 per cent from Nov. 21 through last Friday. The financials group, which jumped 11 per cent, on Friday, fell eight per cent, or 107.04 points, to 1,144.59 on Monday.

“After a good Friday, some investors may have been tempted to believe a reversal had started. That is not the case, and personally, I doubt we’ll see anything better than a bottoming out of the market for some time to come. I’m not optimistic,” Smedley said.

In the U.S., markets were also down substantially as bad economic news mounted. The Dow Jones industrial average dropped 679.95 points, or 7.7 per cent, to 8,149.09. The S&P 500 fell 80.03 points, or 8.93 per cent, to 816.21, while the Nasdaq composite shed 137.5 points, or 8.95 per cent, to 1,398.07.

The National Bureau of Economic Research reported that the U.S. economy has been in a recession since December 2007. Meanwhile, The Institute for Supply Management said manufacturing in the country is contracting at the fastest clip since 1982.

David Pett, Financial Post

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