Canada’s main stock index closed the month on a slightly positive note Friday even though the energy sector was hit by a 22% drop in crude oil prices in November, the worst month in more than a decade.
Despite weaker Canadian growth in third-quarter economic activity and consumer spending, and a focus on U.S. President Donald Trump’s weekend meeting with China’s Xi Jinping, oil again took centre stage.
The January crude contract lost 52¢ to US$50.93 per barrel, down from $65.31 at the start of the month. It has fallen by more than 30% from US$73.25 at the start of October.
“It’s quite a big drop,” says Kevin Headland, senior investment Strategist at Manulife Investments. “Expectations were that when it hit $75 that it was going to continue to climb and I think that was probably an overestimation of the actual conditions of supply-demand fundamentals.”
While November’s price decrease was steep, it was affected by the timing of oversupply conditions amid unexpected waivers on Iranian sanctions and a slowdown in global economic growth, he said.
Uncertainty remains heading into next week’s OPEC meeting when some expect Saudi Arabia to increase production to get some supply balance back into the market.
That should allow oil prices to bounce back, but not to $75 a barrel, Headland said in an interview.
“I think with a slow economic growth environment I don’t see how it can unless you get undersupply conditions and I don’t think that’s going to happen either with shale pumping out at record levels.”
The energy sector was the worst performer on the day, losing almost 1%in Toronto. Health care led on the upside, rising 1.4%, followed by industrials.
The S&P/TSX composite index ended the day up 3.78 points to 15,197.82.
In New York, the Dow Jones industrial average rose 199.62 points to 25,538.46. The S&P 500 index was up 22.23 points at 2,759.99, while the Nasdaq composite was up 57.45 points at 7,330.54.
The Canadian dollar traded at an average of US75.18¢ US compared with an average of US75.33¢ US on Thursday.
The January natural gas contract was down US3.4¢ US$4.61 per mmBTU.
The February gold contract was down US$4.40 at US$1,226 an ounce and the March copper contract was down 0.2 of a cent at US$2.79 a pound.
November has traditionally marked a recovery from October’s market weakness, but a strong recovery failed to materialize even though markets got a lift this week after Federal Reserve Chairman Jerome Powell suggested the central bank is almost done raising interest rates.
The TSX rose just 1% on the month and was off 5.4% from the end of September.
Headland said there wasn’t enough good news coming out of the end of the earnings season to give it a bump up and the trade war issue still looms.
But he remains hopeful about December because the underlining fundamentals of U.S. companies remain strong and any positive signs from the weekend G20 summit could help.
“I don’t think it’ll take much positive news coming out of this weekend to allow the markets to rally at the end of the year.”