Recap: Week Ending December 5, 2014

December 7, 2014

Equities across the board closed the first trading week of December mixed with the Dow Jones Industrial Average rallying 0.73% on the week vs. a much softer NASDAQ 100 that fell -0.60%. US equities also pushed the S&P500 index higher for the week, closing up 0.38%. Like previous weeks, little volatility was seen in US equities as some of the major averages had extremely narrow trading ranges. Such lack of conviction in either direction has led to the CBOE Volatility Index, also known as the VIX, to close at levels that have not been seen in months. The index closed below 12 points, which is the lowest it has been since the middle of September. It must be noted that the last time the VIX saw such levels a wave of volatility hit the markets a few weeks later, leading to a strong selloff in equities. Many traders are hoping for some volatility as markets appear to be running on empty. Last week provided vital economic data showing a gradually improving economy; however, stocks seemed to be relatively uninterested.

The Toronto Stock Exchange Composite Index, which is also referred to as the TSX, saw yet another strong push to the downside, closing the week -1.84% lower. The market is down roughly 5% since making a trend high on November 21st. The sell off in equities can mainly be attributed to an extremely week crude oil and gold market. Last week crude fell yet again, closing -0.55% lower or $0.36. The selloff in crude comes as OPEC refuses to intervene in the production and supply of oil. At the moment the US is producing oil at its highest levels ever, leading to an abundant supply of what many once called black gold. Since crude is a major part of many Canadian companies, a sell-off in the energy complex leads to lower prices, which in turn will lead to fewer profits. As oil stays at these levels for longer periods of time, the less quickly energy related companies could rally higher as such prices continue to compress profits. This was seen last week as even though oil caught a bid some days, energy-related companies fell. Weak Canadian bank earnings did not support the TSX either. Last week saw the profits of Scotiabank, RBC as well as TD fall. Colin Cieszynski, market analyst at CMC Markets Canada is quoted saying Friday, “Not only did the numbers come in below expectations, but I think that it could be the first cracks in their armour which may widen into 2015.” This sent a real damper on the market, sending the TSX Bank Index down 5.4% for the past five days. It must be noted that the Bank Index is now trading at levels that are lower than the lows made in the fall, a very bearish sign for the Canadian financial sector.

The fundamental economic news out last week was the unemployment report which was released both in Canada and the US on Friday. The US employment rate came in unchanged at 5.8%. This was also the consensus. On the other hand, the Canadian rate ticked up from a previous reading of 6.5% to 6.6%. The move higher is the result of the loss of 10.7K jobs for the move of November. This comes after a good month of October job growth which saw the creation of 43.1K jobs. The move higher was expected by economists. The labour force participation rate held steadily in at 66% in Canada and 62.8% in the United States. The news had little impact on the TSX, remaining very flat and seeing a small range on the day closing up 3.75 points. US equities thought more fondly of their employment picture with the Dow closing the day up 58points or 0.33%.

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