Stocks closed lower on Monday as investors took some profits after last week’s record levels while they waited for earnings season to begin and eyed events in Washington with trepidation.
Canada’s S&P/TSX Composite Index closed down 107.62 points, or 0.60%, at 17,934.45, in a broad-based decline. Precious metals stocks were among the most dominant decliners, as the materials sector dropped 1.73% on gold price weakness. Cannabis shares were a rare bright shot, with the Horizons Marijuana Life Sciences ETF gaining nearly 5%.
Canadian bank stocks ended close to unchanged, despite the superintendent of one of Canada’s financial regulators saying he won’t consider allowing banks and insurers to hike dividends, offer share buybacks or increase executive compensation until COVID-19 lockdowns have subsided.
Jeremy Rudin from the Office of the Superintendent of Financial Institutions said he won’t permit any of those measures until Canada has more clarity around its path out of economic uncertainty. OSFI banned dividend increases, share buybacks and executive compensation hikes at the onset of the pandemic to ensure Canada’s financial institutions have economic stability, capital and liquidity.
U.S. and Canadian stocks had rallied last week as investors bet that Democrats’ win of Georgia runoff elections would bring a higher likelihood of a heftier fiscal stimulus package to boost the pandemic-savaged economy.
But some investors worried stimulus could be delayed as House Democrats introduced a resolution to impeach U.S. President Donald Trump, accusing him of inciting insurrection following a violent attack on the Capitol by his supporters.
“When markets are looking at something as critical as the governance of the United States, even a little bit of uncertainty can have a meaningful impact,” said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts. “What does that do to the ability of the parties to work together to pass policy things like stimulus.”
McMillan said investors also worried about more attacks. The FBI has warned of possible armed protests being planned for Washington, D.C., and at all 50 U.S. state capital cities in the run-up to President-elect Joe Biden’s inauguration on Jan. 20, a federal law enforcement source said on Monday.
“Generally speaking, Washington doesn’t make too much of a difference but since policy is influencing so much of what’s expected around the economy, this is kind of a unique time,” he said.
But with U.S. Treasury yields rising on Monday and outperformance of economically-sensitive sectors such as energy and financials, Keith Lerner, chief market strategist at Truist Advisory Services in Atlanta, Georgia, said investors were still hopeful about stimulus.
“After last week the market is in a little bit of a digestion phase. Underneath the surface what you’re seeing continue is the reflation trade,” said Lerner. “This is a continuation of the expectation of more fiscal stimulus.”
And along with wariness about Trump’s last nine days in office, Lerner also cited uncertainty ahead of the unofficial start of earnings season on Friday when banks such as JPMorgan report results.
After the market’s big run up last week and in the last trading days of 2020, it is “somewhat impressive” there is not more profit taking, he said.
Unofficially, the Dow Jones Industrial Average fell 0.29% to end at 31,008.69 points, while the S&P 500 lost 0.66% to 3,799.61. The Nasdaq Composite dropped 1.25% to 13,036.43.
Shares of the micro-blogging site Twitter Inc tumbled 6.4% after it permanently suspended Trump’s account. But it shares were still about 160% higher that where they traded before Trump won the Presidential election in 2016.
Other Big Tech firms Facebook Inc, Alphabet Inc-owned Google and Apple Inc were also weak on Monday as they took their strongest actions yet against Trump to limit his social media reach.
Investors are expecting guidance on the extent to which executives see a rebound in 2021 earnings and the economy from results and conference calls from JP Morgan, Citi and Wells Fargo Friday.
Benchmark 10-year Treasury notes last fell 9/32 in price to yield 1.1358%, from 1.107% late on Friday.
The spread between the 2-year and 10-year Treasury yield brushed against 100 basis points to hit its steepest since July 2017.
The climb in yields in turn offered some support to the U.S. dollar, which rose to its highest in over two weeks against a basket of currencies. The Canadian dollar, conversely, fell by more than half a cent, to 78.25 cents US.
Crude oil prices fell, hit by renewed concerns about global fuel demand amid tough coronavirus lockdowns across the globe, as well as the stronger dollar.
“The renewed concerns about demand due to very high numbers of new corona cases and further mobility restrictions, plus the stronger U.S. dollar, are generating selling pressure,” Commerzbank analyst Eugen Weinberg said.
U.S. crude recently fell 0.31% to $52.08 per barrel and Brent was at $55.51, down 0.86% on the day.
Spot gold dropped 0.1% to $1,845.91 an ounce. Silver fell 1.66% to $24.95.
Bitcoin last fell 17.49% to $31,498.43. At its session low, the cryptocurrency fell 21% on Monday.
Read more: Stocks that saw action Monday - and why
Reuters, with files from Darcy Keith of The Globe and Mail