January 9, 2012 / 2:03 PM / in 6 years

Cautious investors put cap on TSX gains

TORONTO (Reuters) - Toronto’s main stock index ended little changed on Monday, as a lack of a clear resolution to Europe’s financial crisis weighed on commodity prices, offsetting the positive effect of optimism for upcoming U.S. corporate earnings.

Teck Resources TCKb.TO was the heaviest laggard on the index, down 1.8 percent to C$37.65, followed by Talisman Energy TLM.TO, down 2.2 percent to C$12.40, and Potash Corp (POT.TO), off 0.8 percent to C$42.62.

Meanwhile, other big commodity plays gained on the day, such as Suncor Energy (SU.TO), up 1.1 percent to C$31.91 and Goldcorp (G.TO), which added 1.3 percent to C$45.80.

After a solid start to equity markets in the first week of 2012, investors have grown more skeptical about whether European politicians can craft a plan that moves the region closer to solving its debt crisis. This week’s bond auctions by Italy and Spain will test the willingness of investors to pump more money into the region’s troubled sovereigns.

Investors also heard that German Chancellor Angela Merkel and French President Nicolas Sarkozy warned Greece on Monday it will get no more bailout funds until it agrees with creditor banks on a bond swap and pressed for an early deal to avert a potential default - though the admonishment had little impact on stocks. <ID:L6E8C9392>

“The shock and awe value of the headlines is over. They’re not making waves any more, so that’s good news,” said Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services.

After finishing last week nearly 2 percent higher thanks to a slew of positive U.S. economic news, the Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE ended Monday up just 8.08 points, or 0.07 percent, at 12,196.72.

“(The European debt crisis) has done too much damage from a technical perspective so it needs more work other than just rhetoric,” said Sid Mokhtari, market technician and director, institutional equity research, CIBC World Markets.

Over the last few months, the relative health of the U.S. economy has helped distract investors from the grim European outlook, but that may change should conditions worsen oversees, said Mokhtari.

“Maybe the world is focusing too much on the economic improvement in the U.S. and dismissing the worsening economic behavior in other parts of the world,” said Mokhtari. “Either the world needs to come back nicely or the U.S. will catch down with the world.”

Investors were looking for further good news south of the border. Earnings season unofficially kicked off after the bell on Monday when Alcoa Inc (AA.N), the largest U.S. aluminum producer, reported results. Canadian companies don’t start to report earnings until next week.

Wall Street outperformed the TSX on Monday, closing up 0.27 percent, continuing the broader trend of 2011.

“The U.S. kind of broke away in the last few months of the year as people said commodities are not the place to be, we want to be in dividend paying stocks and predictable businesses that do fine in any type of environment and that’s really the bread and butter of the S&P 500,” added Schwartz.

“That’s why the TSX has been underperforming, when you’ve 50 percent of your index tied to cyclical sectors that are reliant on China and other growing economies, it’s a problem.”

Additional reporting by Jon Cook; editing by Rob Wilson

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