North American stocks fall again as businesses look to hit pause

Trading on Canada’s main stock index was temporarily halted for the third time in the past week over steep losses as investors assess efforts to slow the spread of COVID-19.

The S&P/TSX composite index triggered a circuit-breaker after opening down 11 per cent or more than 1,800 points. It partially recovered in early afternoon trading to be off 8.1 per cent or 1,111.14 points at 12,605.19.

In New York, the Dow Jones industrial average was down 1,906.80 points or 8.2 per cent at 21,278.82. The S&P 500 index was down 211.74 points at 2,459.28, while the Nasdaq composite was down 626.16 points at 7,248.07.

The markets fell after the Federal Reserve over the weekend joined the Bank of Canada in again cutting interest rates.

“This is still a market that is pricing in not just a garden variety recession but the possibility of something worse,” said Frances Donald, global chief economist and head of macro strategy for Manulife Investment Management.

That could include protracted weak economic activity that looks like a credit crisis if defaults start to rise.

“We have so little visibility into what the economy will look like next and let’s remember the stock market is trying to get a sense of what earnings will look like,” she said in an interview.

The shape of earnings won’t be known until novel coronavirus cases start to slow.

In the meantime, the TSX is down about 29 per cent from its Feb. 20 high while the S&P 500 is down 27 per cent and the Dow nearly 29 per cent.

“The relative under performance of the Canadian stock market reflects our out-sized representation of the energy sector. The two weakest sectors in the TSX are the energy and financial sectors,” Sherry Cooper, chief economist of Dominion Lending Centres, wrote in a note.

She said the banks are highly capitalized and much more resilient than during the financial crisis despite a loss of confidence in these extraordinary times.

“Some are calling for a full shutdown of the stock markets — but imagine the panic if no one could sell assets. There would truly be a run on the banks. Now is not a time to panic.”

The Canadian dollar traded for 71.47 cents U.S. compared with an average of 71.94 cents U.S. on Friday.

The weakness in the loonie to a four-year low comes as investors increasingly seek shelter in the U.S. dollar and the Japanese yen on concerns about the economic impact of COVID-19, policy responses in Western Europe and the spread of events, restaurants and stores shutting down in North America, said Tom Nakamura, vice-president and portfolio manager, currency strategy at AGF Investments Inc.

“There’s also market concern about the Canadian economy and whether we have enough policy tools and we have enough fiscal space to be able to combat these kind of dual shocks to our system,” he said.

Nakamura said the loonie’s decrease has little to do with Friday’s rate cut by the Bank of Canada since a reduction was already priced-in, even if it did come sooner than expected.

He added that the Canadian dollar could still shed some more value until there’s signs that the virus cases have peaked.

The April crude contract was down US$2.45 at US$29.28 per barrel and the April natural gas contract was down five cents at US$1.82 per mmBTU.

The April gold contract was down US$29.40 at US$1,487.30 an ounce and the May copper contract was down 7.9 cents at US$2.385 a pound.