TORONTO - Investors are hoping for a return to calmer conditions on stock markets after North American markets revived considerably by the end of last week despite a string of stomach-churning sessions that featured swoops of 400 or 500 points in both directions.
"We're into a bottoming out process," said Colin Cieszynski, market analyst at CMC Markets Canada.
"But it's a lot of back and forth and this one has been difficult to find but we do have markets trying to find a bottom."
The forecast appeared positive at the end of the week as bargain hunters continued to snap up stocks badly beaten down in a rout that gained momentum three weeks ago on worries about other countries like Spain, Italy and France getting caught up in the European debt crisis.
There have also been nagging worries that the American economy could slip back into recession. But the final straw seemed to be Standard and Poors' downgrade of U.S. government debt as a result of the prolonged and acrimonious negotiations over raising the U.S. debt limit.
The lows of the year on the Toronto market were hit last Monday when a plunge of almost 500 points pushed the TSX down almost 20 per cent from its most recent high in early March, presenting investors with a host of stocks beaten down in price.
"You've seen in Toronto, particularly the last three or four days, there have been very, very large MOC orders, market on close orders, and what that really says is big investors have been putting money to work in this environment like big, big money and long, long term," said John O'Connell, CEO of Davis Rea Ltd., who also observed that losses were even greater in sectors such as energy, which were down 30 per cent.
"And they have been making asset allocation shifts saying, I'm not earning anything in my bond portfolio, I'm going to buy some stocks."
Also, the CBOE's widely watched volatility index was in the mid-30s Friday after surging to almost 50 earlier last week.
A strong July retail sales report in the U.S. also helped push the TSX up 380 points or 3.12 per cent last week while the Dow industrials lost 175.59 points or 1.53 per cent.
If markets can find a bottom this week, then investors can concentrate on the next problem: getting indexes up again.
For the time being, worries about Europe seem to trump worries about the American economy.
Traders were pleased to see regulators in France, Italy, Spain and Belgium impose temporary bans on short-selling of financial shares last Thursday, following sharp selloffs and temporary gains in French bank shares in particular that were blamed on false rumours. Greece had already banned short-selling on Monday.
But data on Friday showed France's economy unexpectedly ground to a halt in the second quarter on the back of a sudden reversal in consumer spending and stagnation by the country's exporters. France is already facing speculation that it may soon lose its AAA credit rating due to its high debt load.
It added up to increasing frustration that once Eurozone officials deal with one issue, another pops up to take its place.
"It's true, the problems do remain, they don't go away and things can still drag on for quite some time," Cieszynski said.
"The meeting Tuesday with (French president Nicholas) Sarkozy and (German chancellor Angela) Merkel, it's nice they're getting together but as we have seen with other meetings, they can't solve it all in one meeting or one deal or anything else. It's a process that is going to take a very, very long time."
In the meantime, O'Connel thinks people need to think about where they want to have their money invested.
"If you think that the world is going to continue to revolve in a positive way over time, there are some good values out there and some good businesses that are paying you very handsome returns to be an investor," he said.
"If you're a speculator, good luck to you."
