Newspaper article The Canadian Press

Stock Markets in for Further Swings, Investors Try to Gauge Depth of Downturn

Newspaper article The Canadian Press

Stock Markets in for Further Swings, Investors Try to Gauge Depth of Downturn

Article excerpt

Stocks in for further volatility this week


TORONTO - Stock markets are likely in for more volatility this week as traders wonder if sharp gains at the end of last week signal an end to what would be a relatively mild retracement -- defined as a temporary reversal in the direction of a stock's price that goes against the prevailing trend -- or a full blown correction. That sort of downdraft carves at least 10 per cent from market highs.

"Neither we nor anyone else knows exactly how deep (the declines) will run, (or) how long it will take," said David Wolf, portfolio manager at Fidelity Investments.

"What we do know is that this has happened before in markets, it will happen again in markets and in the meantime, the key message is don't panic."

The TSX ended last week with two back-to-back triple-digit advances for a flat performance on the week after six straight weeks of losses, while the Dow industrials declined one per cent, adding to five weeks of losses.

North American markets have nose-dived since hitting recent highs in September on worries that the U.S. economy was the only bright spot in an otherwise grim global economy and that European powerhouse Germany could slip into recession. Uncertainties also persist over the impending end of the Federal Reserve's key stimulus program of massive bond purchases.

Markets started sensing capitulation signals at the middle of last week at a point where the TSX was down about 12 per cent from its September highs -- two percentage points more than the threshold that marks correction territory -- while the Dow industrials had fallen about eight per cent and the S&P 500 more than nine per cent.

The TSX is now down nine per cent from the September highs.

At the same time, there seems to be general agreement that the correction was long overdue. New York markets hadn't seen a correction in about three years while Toronto valuations, particularly in the energy sector, were looking stretched. …

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