A sign board displaying Toronto Stock Exchange (TSX) stock information is seen in Toronto June 23, 2014.Reuters
Jennifer Dowty, CFA, writes exclusively for Globe Unlimited subscribers.
It was an ugly start to the week for investors, with the S&P/TSX composite index losing 317.94 points Monday, or 2.15 per cent - wiping out its 2015 gains.
Of the 249 stocks in the S&P/TSX composite index, 240 stocks closed in negative territory, one stock was unchanged, and just eight stocks were up today. Six of the seven most influential weights on the Canadian stock index were financial stocks, according to Reuters. Royal Bank of Canada fell 2.3 per cent to $76.47, Bank of Nova Scotia was down 2.99 per cent to $64.65, and TD was down 2.34 per cent to $53.07.
In overseas trading, Japan's Nikkei Stock Average declined 2.9 per cent. The Shanghai Stock Exchange composite index fell 3.3 per cent despite the People's Bank of China cutting its benchmark lending rate and the central back loosening its bank reserve requirements. In Europe, the French and German stock markets were down 3.7 per cent, and 3.6 per cent respectively.
The losses in Toronto and worldwide weren't a total surprise after Greece said it will miss a 1.6 billion euro loan payment, dramatically increasing bets that the country will leave the euro zone. Recent polls suggest that the majority of Greek citizens want to agree to the bailout terms, and remain in the euro zone. Meanwhile, Standard & Poor's Rating Services lowered the long-term ratings on Greece to 'CCC-' and gave a negative outlook. The report also stated that, "the probability of Greece exiting the Euro zone is now about 50 per cent."
But here is a bright spot today: volumes. Volumes on the S&P/TSX composite index were not terribly high. Approximately 162 million shares traded, whereas the average daily volume is typically just under 200 million shares. In other words, there is not panic selling. We are not seeing capitulation in the S&P/TSX composite index, we are simply seeing a lack of buyers in my opinion.
My bottom line is this: I don't believe in catching a falling knife and would not be recommending investors step into the markets quite yet. As a long-term investor, I would rather wait for the dust to settle before buying in.
Right now, it is a perfect time for investors to start making a list of stocks that they want to accumulate on this pullback. I would focus on domestic stocks with strong fundamentals and positive industry conditions.