TORONTO -- Canada's main stock index rebounded from its worst day of the year but still closed at a five-month low Thursday amid continuing concerns about a global economic slowdown.
Markets have finally "sobered up" and are accepting that there is a global economic slowdown, said Kash Pashootan, CEO and chief investment officer at First Avenue Investment Counsel Inc.
"Arguably there's not that much different today in terms of global uncertainty than there was two or three months ago when markets were booming but the fact is that although the good and the bad have not really changed the markets have now decided to take a view more to the negative and the optimism has really worn off," he said in an interview.
Pashootan said he doesn't understand the euphoria that sent markets to record highs last month and that geopolitical uncertainties and a global growth slowdown justify why equities shouldn't go higher.
He said markets were intoxicated by central bank interest rate cuts but are now back to focusing on fundamentals and geopolitical factors such as the lingering trade war between the U.S. and China, protests in Hong Kong, an economic slowdown in Germany and weaker-than-expected data from India, Argentina and Singapore.
The S&P/TSX composite index closed down 33.41 points to 16,012.53, after hitting an intraday low of 15,964.38, the lowest level since Feb. 19.
In New York, the Dow Jones industrial average was up 99.97 points at 25,579.39 after losing 800 points on Wednesday. The S&P 500 index was up seven points at 2,847.60, while the Nasdaq composite was down 7.32 points at 7,766.62.
Despite lingering fears of a recession, U.S. markets were buttressed by retail sales rising a healthy 0.7 per cent in July, indicating that the trade war and weaker economic growth hasn't dampened consumer spending that is a key contributor to the economy.
However, factory production declined 0.4 per cent, driven by lower output of autos, fabricated metals, and wood products. Manufacturing output has now fallen 0.5 per cent in the past year.
The Canadian dollar traded for an average of 75.05 cents US, compared with an average of 75.13 cents US on Wednesday.
The health care sector was the worst performer on the TSX, falling 6.2 per cent as shares of cannabis producer Canopy Growth Corp. plunged 14.5 per cent and hit its lowest level of the year after quarterly results that suggested the cannabis producer lost market share. Cronos Group Inc. was down 8.2 per cent and Hexo Corp. 6.6 per cent.
Energy decreased 0.8 per cent with Encana Corp. down 2.5 per cent as crude prices continued to decrease on worries that a global economic slowdown would cut demand.
The September crude contract dropped 76 cents at US$54.47 per barrel and the September natural gas contract was up 8.9 cents at US$2.23 per mmBTU.
Materials was one of six major sectors that were higher. It rose as the December gold contract was up US$3.40 at US$1,531.20 an ounce and the September copper contract was up 0.3 of a cent at US$2.59 a pound.
Pashootan said further U.S. interest rate cuts that are now expected as early as next month are unnecessary and dangerous because they interfere with an inevitable recession and remove some of the firepower that central banks will eventually need to stimulate the economy.
"We feel that the market needs to cleanse out some of the artificial appreciation that it experienced because of rate cut enthusiasm," he said.
"So by prematurely unleashing stimulus and rate cuts it leaves the central banks in a difficult position because once the inevitable takes place, which is a recession,... 1/8it 3/8 will stay in that state for longer than expected because we will not have the same tools in our toolbox because central banks used those tools prematurely."
