S&P/TSX composite slides again as hopes for ‘Santa Claus rally’ fade

A sign board displays the TSX level outside the Richmond Adelaide Centre in the financial district in Toronto on Wednesday, September 29, 2021. THE CANADIAN PRESS/Evan Buhler. EEB

Investor hopes for a “Santa Claus rally” this December were dampened yet again Friday, as broad-based declines capped a week of losses on North American markets.

The S&P/TSX composite index closed down 157.35 points at 19,443.28, for its second straight weekly loss. Canada’s largest stock index is down five per cent since the beginning of the month.

In New York, the Dow Jones industrial average closed down 281.76 points at 32,920.46. The S&P 500 index ended the day at 43.39 points at 3,852.36, while the Nasdaq composite was down 105.12 points at 10,705.41.

Investors may have started the month with high hopes for a “Santa Claus rally,” a term used to describe what has been a historical tendency for the month of December to deliver positive returns for Canadian and U.S. stocks.

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But as recession fears mount globally, those hopes are quickly dwindling, said Brian Madden, chief investment officer with First Avenue Investment Counsel.

“I don’t think (a Santa Claus rally) is really all that likely, considering the hole we’re in after the first two weeks,” Madden said.

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“That would be a lot of ground to recover in the next two weeks.”

The week started positively with the release of the latest U.S. consumer price index data, which showed the rate of inflation in that country is beginning to slow.

But Madden said the brief bump markets got from that news was quickly derailed by the U.S. Federal Reserve, which on Wednesday signaled that it is willing to keep interest rates high for most of next year to maintain its aggressive attack on prices.

The European Central Bank also made hawkish statements this week, adding to investor fears that central bankers won’t retreat from their efforts to get inflation under control, even in the face of a looming recession.

“The bond market has been screaming recession loudly — like louder than we’ve heard for year — for months and months,” Madden said, adding bond yield curve inversions, such as markets are seeing right now, are a historically reliable indicator of difficult economic times ahead.

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Oil prices also continued their slide on Friday, with the February crude contract down US$1.69 at US$74.46 per barrel.

That took a bite out of Canadian oil and gas stocks, with the S&P/TSX capped energy index declining 2.72 per cent — making it the hardest-hit sector Friday.

Madden said oil’s decline in the last month is a reflection of slowing global growth and investor concerns about what that will due to energy demand.

“Oil goes down in a recession, pretty much 100 per cent of the time,” Madden said.

While he added there are still patches of bull market to be found for savvy investors looking, those bright spots are getting harder to find.

“Any last hopes that people have that we’re going to avert a recession are evaporating.”

The January natural gas contract was down 37 cents at US$6.60 per mmBTU.

The February gold contract was up US$12.40 at US$1,800.20 an ounce and the March copper contract was down one-and-a-half cents at US$3.76 a pound.

The Canadian dollar traded for 73.06 cents US compared with 73.31 cents US on Thursday.

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