Canada Stocks Close Lower After Late Selling, Adding To 1,000 Pts Lost Over Prior 4 Days; BMO Capital Markets Canadian Strategy Snapshot, 'Flight to Safety Headwinds and the TSX'

Last Updated: Tuesday, September 27, 2022 4:10 PM | MT Newswires

Canada's main stock market lost about 40 points over the last hour of Tuesday trade and with that the Toronto Stock Exchange ended the day down 20 points, adding to the 1,000 points lost over the prior four successive sessions. The resources heavy index had been up about 140 points in the minutes immediately following the opening bells.

Tuesday's losses came despite gains for commodity prices, that helped the Energy sector to gain 1.5% and the Materials sector to rise near 1.2%. But Financials weighed, down 1%.

For BMO Capital Markets the Bottom Line is: despite the strong value and fundamental position of the TSX, Canadian equities have not been immune to the flight to US trade over the last few weeks and months. In fact, it noted, net foreign equity flows hit a record low in June 2022 with momentum slowing sharply throughout the year. Furthermore, it added, the strong appreciation of the USD has seen the Canadian dollar hit the lowest level on a relative basis since 2020.

BMO Capital Markets said: "While the safety trade to the US could certainly persist for many more months or quarters, we believe when, not if a trough in both the currency and net equity flows occurs that it will become a strong tailwind for Canadian stocks. In fact, our work shows troughs in the Canadian dollar and foreign flows are often a strong contrarian indicator, with the TSX posting double-digit returns on average 12 months after such extremes. As such, despite continued elevated volatility and negative sentiment, we believe Canadian-centric investors should remain broadly more cyclical while focusing on areas with strong relative value and income growth, strategies we continue to believe are well positioned to weather the current volatility."

Of commodities today, gold gained ground on Tuesday, rising off the lowest in more than two years, as the dollar and bond yields rose but stayed under off multi-year highs touched a day earlier. Gold for December delivery closed up $2.80 to settle at US$1,636.20 per ounce, after falling a day earlier to the lowest since March, 2020, as the dollar and bond yields moved up.

Also, West Texas Intermediate crude oil rose off near-nine month lows as the US dollar eased off a 20-year high and producers suspended some production from Gulf of Mexico platforms threatened by the approach of Hurricane Ian. WTI crude for November delivery closed up $1.79 to US$78.50 per barrel, Marketwatch reported. November Brent crude, the global benchmark, was last seen up $2.37 to US$86.43, while Western Canada Select was up $1.79 to US$56.35 per barrel.

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