TORONTO — Canada's main stock index suffered its worst week in three months amid a correction that is expected to continue in February.
"It's not really unexpected just given the magnitude of the kind of rally that we've had in a lot of areas, particularly in the cyclical side of the market," said Sid Mokhtari, executive director of institutional equity research at CIBC.
Stock markets have surged more than 60 per cent since COVID-19 prompted a deep sell-off in March. That's caused spikes in some company valuations.
Contributing to Friday's market decrease are economic softness, global lockdowns and soft GDP numbers.
The Canadian economy appeared to have suffered its worst year on record as Statistics Canada's preliminary estimate out Friday showed a contraction of 5.1 per cent in 2020.
Mokhtari said markets are likely about halfway through what could be an eight per cent correction from recent highs.
"It's not necessarily a bad thing but it can be a little bit challenging for some people," he said in an interview.
Historically, he said stock market returns after a U.S. presidential election are negative for February, more than half of the time.
The S&P/TSX composite index closed down 320.18 points or 1.8 per cent to 17,337.02 on Friday. A wild week concluded with markets losing the previous day's gains which followed a day in which it experienced the largest loss since October.
The market ended the month at its lowest close since Dec. 1, wiping out what had started as a strong January.
In New York, the Dow Jones industrial average was down 620.74 points at 29,982.62. The S&P 500 index was down 73.14 points at 3,714.24, while the Nasdaq composite was down 266.47 points at 13,070.69.
January's results are seen as a precursor for the year, but this year might be different.
And no matter how deep a correction is ultimately experienced, it shouldn't be a "game-changer" in terms of the longer-term trajectory, Mokhtari said, adding it could present a buying opportunity.
"We think it's going to be a positive year but we do believe it's going to have some challenges as you go forward," Mokhtari said.
More than half of stocks on the S&P 500 have fallen below their 50-day moving averages, which accelerates the pressure from computer algorithms, he said.
All 11 major sectors on the TSX were down in a broad-based decline led by technology, consumer discretionary, industrials and energy.
BlackBerry Ltd. lost 4.5 per cent to push the technology sector down 2.8 per cent.
Air Canada's shares plunged 4.8 per cent after the federal government prompted the country's airlines to halt flights to the Caribbean and Mexico until April 30.
Energy dipped two per cent on lower crude oil prices as shares of Enerplus Corp., Vermilion Energy Inc. and Suncor Energy Inc. fell by 4.1, 3.8 and 2.7 per cent, respectively.
The March crude contract was down 14 cents at US$52.20 per barrel and the March natural gas contract was down 10 cents at US$2.56 per mmBTU.
The Canadian dollar traded for 78.25 cents US compared with 78.06 cents US on Thursday.
The heavyweight financials sector decreased 1.9 per cent with Bank of Montreal shares losing 3.1 per cent.
Although down 1.1 per cent, materials were the second-best sector performer on the day as silver futures continued to rise.
The March contract increased 99 cents US or 3.8 per cent to US$26.91 an ounce.
Mokhtari said the recent increases appear to be following a pattern similar to what has impacted GameStop, BlackBerry and other companies.
The April gold contract was up US$9.10 at US$1,850.30 an ounce and the March copper contract was down 2.2 cents at nearly US$3.56 a pound.
This report by The Canadian Press was first published Jan 29, 2021.
Companies in this story: (TSX:AC, TSX:BB, TSX:BMO, TSX:ERF, TSX:VET, TSX:SU, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press