Don't play dead when the bear visits
By John McCrank
TORONTO (Reuters) - Canadian-listed stocks have tumbled almost 10 percent from their record high in less than a month, and market watchers say there is a real possibility of a slide into bear territory, as measured by a 20 percent drop.
"I can't rule it out, given that just about every other major market in the world is in bear territory," said Doug Porter, deputy chief economist at BMO Capital Markets.
"We've seen the Toronto Stock Exchange shed almost 10 percent in the space of three weeks and another 10 percent is certainly believable."
In the United States, the Dow Jones industrial average closed in bear territory on July 2, pushed by inflationary concerns over higher oil and food prices, and by mounting credit losses in the financial sector.
Those same suspects brought the bear knocking at Britain's FTSE 100 on July 10.
The S&P/TSX composite is heavily skewed towards cyclicals, such as energy and base metals, which are in hot demand and have helped limit losses on the index. But it is also heavy on financials, which are down around 18 percent this year.
The test over the next few months that will determine whether the TSX gets pushed into a bear market will be what emerges as the biggest threat to global markets: continued high energy prices or an even deeper credit crisis.
"With the global environment we're dealing with, I think a good case can be made on both sides, and I don't think it's obvious which one is going to dominate," said Porter. Continued...