The mainstream press do a good job of presenting quick quotes, and implying all kinds of dread and panic. Its worth looking beyond the headline and some facts at the differences between the US situation and Canada.
Future of Canada’s economy comes into question as TSX ends week of panic | Canadian Press
The theme of the article is broadly the spillover effect of a slowing US economy, reduction in credit availability, and reduction in consumer spending.
It is certainly not our place to make predictions or make economic commentary, but some facts might be useful. Then we can each decide the reason or cause for any panic reflected in the TSX.
Some basic facts in the diagram below, compiled courtesy of Google Finance. In order to highlight the relative effects of banking in each country’s stock market. We have US on the left, Canada on the right.
The US Dow is down 26% and roughly the same in Canada at 27%.
However when we look at financial services, a component of the Dow index, the American index is down 52%. This suggests that the Dow banking sector is worried. The sentiment of the market is that the US is in a flat out banking crisis.
In Canada it appears to be the opposite - what exactly are we panicking about in Canada? Clearly not banking, because relatively speaking the Canadian banks are holding the Canadian stock market higher, with the TSX is apparently being dragged down by other factors. We may well have cause for panic, but it doesn’t appear to be reflected in market sentiment for Canadian financial services.
2 responses so far ↓
Alan // October 6, 2008 at 4:05 pm
A 19% drop in the financial services index (Canada) is not considered worrying or correlated?
Sheesh! Canada is not a major financial player (compared to the US) so there is an element of safety in being less active but a 1/5 drop in value is still enormous. TSX’ declines are across the board, but notably in resources as well (reflecting anticipated economic slowing).
While the crisis is not mirrored, there is little to cheer about.
Colin // October 6, 2008 at 4:25 pm
Alan … agreed their nothing to cheer about in this mess. There is a relative distinction between Canadian banks and US/UK banks that the market is recognising, otherwise we would see the same percentage drop as we are in the overall market. One thought I had was the work Purdy Crawford and the Feds did last year to stabilise $35Bn in ABCP. Perhaps that along with the early recognition in loan losses by the Canadian Banks has forestalled the wrath of investors.
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