TSX plunges as potash shares hit
Shares in Toronto were pounded almost 7 per cent lower Thursday, as cheaper oil, a downgrade for potash producers and nervous anticipation of a bailout package for the U.S. financial industry took the index down hard.
The S&P/TSX was down 6.95 per cent, or 813.97 points, to close below 11,000 for the first time in two years, at 10,928.82. In the United States, the Dow Jones industrial average fell 3.32 per cent, or 359.69 points, to 10,471.38. The broader S&P 500 fell 4.03 per cent, or 46.78 points, to 1,114.28.
Merrill Lynch downgraded the fertilizer sector to “underperform” from “buy,” suggesting prices were coming down from record highs, and farmers may be less likely to plant fertilizer-dependent corn next year as prices drop, and instead opt for hardier soybeans.
“The near-term fertilizer demand outlook has become more uncertain as the recent decline in corn prices has reduced the margin advantage over less fertilizer-intensive soybeans,” analyst Don Carson wrote in a note to clients.
Potash Corp. lost 26 per cent, with about 63 million shares traded, compared to a three-month average volume of 19 million. Agrium fell 21.7 per cent.
“In Canada there’s been a lot of people crowded into the same stocks, and the number of companies that were still working got narrower and narrower,” said Colin Stewart, a portfolio manager at JC Clark Investments Ltd. in Toronto. “Those favourite stories have broken down, and companies like Potash are a big part of the index, so you see these types of days.”
Sentiment for the agricultural products sector also took a hit after Mosaic Co. missed expectations in its first-quarter earnings report Wednesday. The company earned $2.65 (U.S.) a share, but analysts had expected $2.94. Profit increased to $1.1-billion from $305-million a year ago.
“This is obviously an extremely volatile market,” said Michael Decter, chief executive officer of Lawrence Decter Investment Counsel. “It’s a vast overreaction to what Mosaic reported – is there any reason to take $30 off Potash Corp.? I don’t think so.”
He said the rash of selling is likely motivated as much by general economic fears as any concern about the world’s supply of potash, and suggested that short-sellers have moved on to commodities now that they have been forbidden by the SEC to short financial shares.
“You can see why they would move on to short other stocks as bad news keeps piling in,” he said. “You have the uncertainty over the bailout and the economy, and when you stack it all up together it makes for a very unpleasant day. But if you were to buy Potash today, my guess is two years from now you’d look like a genius.”
The mining subindex – which counts Potash and Agrium among its members – is weighted at 15 per cent on the S&P/TSX, the third-highest of its 10 sectors. The subindex was down 16 per cent Thursday, and is down 33 per cent in the last three months.
The energy sector was down 8.36 per cent as light, sweet crude for November delivery fell $4.56 (U.S.) to $93.97 a barrel on the New York Mercantile Exchange on fears that a weaker economy will cut into consumption.
Also weighing on markets was the status of a bailout package for the U.S. financial sector. The Senate approved a bailout package that contained more concessions for Main Street Wednesday, after a $700-billion plan was rejected by the House of Representatives on Monday. The new deal would see a temporary increase in bank deposit insurance, as well as tax breaks for the middle class. It will now move to the House, which is expected to vote Friday.
Meanwhile, the number of U.S. workers filing new unemployment benefits claims rose to its highest level in seven years, the government said Thursday, blaming hurricanes Ike and Gustav for displacing workers. Initial jobless claims were at 497,000 in the week ended Sept. 27. Economists had expected the number to be 475,000.
“We had expected a smaller weather effect in this week’s report but the Labour Department says the hurricanes added about 45,000 to claims,” commented Ian Shepherdson, chief U.S. economist at High Frequency Economics. “The underlying trend, therefore, seems to be about 450,000, which is still disconcertingly high. The peak trend in claims in the recession of 2001, excluding the period after 9/11, was just 400,000 or so.”
Demand for U.S. factory goods dropped at the fastest rate in two years in August, causing further concerns about the health of the economy. Factory orders fell 4 per cent, with economists having predicted a 3 per cent drop.
The S&P/TSX was down 6.95 per cent, or 813.97 points, to close below 11,000 for the first time in two years, at 10,928.82. In the United States, the Dow Jones industrial average fell 3.32 per cent, or 359.69 points, to 10,471.38. The broader S&P 500 fell 4.03 per cent, or 46.78 points, to 1,114.28.
Merrill Lynch downgraded the fertilizer sector to “underperform” from “buy,” suggesting prices were coming down from record highs, and farmers may be less likely to plant fertilizer-dependent corn next year as prices drop, and instead opt for hardier soybeans.
“The near-term fertilizer demand outlook has become more uncertain as the recent decline in corn prices has reduced the margin advantage over less fertilizer-intensive soybeans,” analyst Don Carson wrote in a note to clients.
Potash Corp. lost 26 per cent, with about 63 million shares traded, compared to a three-month average volume of 19 million. Agrium fell 21.7 per cent.
“In Canada there’s been a lot of people crowded into the same stocks, and the number of companies that were still working got narrower and narrower,” said Colin Stewart, a portfolio manager at JC Clark Investments Ltd. in Toronto. “Those favourite stories have broken down, and companies like Potash are a big part of the index, so you see these types of days.”
Sentiment for the agricultural products sector also took a hit after Mosaic Co. missed expectations in its first-quarter earnings report Wednesday. The company earned $2.65 (U.S.) a share, but analysts had expected $2.94. Profit increased to $1.1-billion from $305-million a year ago.
“This is obviously an extremely volatile market,” said Michael Decter, chief executive officer of Lawrence Decter Investment Counsel. “It’s a vast overreaction to what Mosaic reported – is there any reason to take $30 off Potash Corp.? I don’t think so.”
He said the rash of selling is likely motivated as much by general economic fears as any concern about the world’s supply of potash, and suggested that short-sellers have moved on to commodities now that they have been forbidden by the SEC to short financial shares.
“You can see why they would move on to short other stocks as bad news keeps piling in,” he said. “You have the uncertainty over the bailout and the economy, and when you stack it all up together it makes for a very unpleasant day. But if you were to buy Potash today, my guess is two years from now you’d look like a genius.”
The mining subindex – which counts Potash and Agrium among its members – is weighted at 15 per cent on the S&P/TSX, the third-highest of its 10 sectors. The subindex was down 16 per cent Thursday, and is down 33 per cent in the last three months.
The energy sector was down 8.36 per cent as light, sweet crude for November delivery fell $4.56 (U.S.) to $93.97 a barrel on the New York Mercantile Exchange on fears that a weaker economy will cut into consumption.
Also weighing on markets was the status of a bailout package for the U.S. financial sector. The Senate approved a bailout package that contained more concessions for Main Street Wednesday, after a $700-billion plan was rejected by the House of Representatives on Monday. The new deal would see a temporary increase in bank deposit insurance, as well as tax breaks for the middle class. It will now move to the House, which is expected to vote Friday.
Meanwhile, the number of U.S. workers filing new unemployment benefits claims rose to its highest level in seven years, the government said Thursday, blaming hurricanes Ike and Gustav for displacing workers. Initial jobless claims were at 497,000 in the week ended Sept. 27. Economists had expected the number to be 475,000.
“We had expected a smaller weather effect in this week’s report but the Labour Department says the hurricanes added about 45,000 to claims,” commented Ian Shepherdson, chief U.S. economist at High Frequency Economics. “The underlying trend, therefore, seems to be about 450,000, which is still disconcertingly high. The peak trend in claims in the recession of 2001, excluding the period after 9/11, was just 400,000 or so.”
Demand for U.S. factory goods dropped at the fastest rate in two years in August, causing further concerns about the health of the economy. Factory orders fell 4 per cent, with economists having predicted a 3 per cent drop.
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