North American stock markets lost ground Tuesday on heightened concerns about the pace of economic reopenings during the COVID-19 pandemic.
Investor jitters were heightened by U.S. Senate testimony from Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, and other health officials.
Fauci warned that development of a usable vaccine that is essential to stop the spread of the novel coronavirus may take awhile. He also said the U.S. could face more “suffering and death” if states reopen too quickly.
His warnings got the attention of markets about the caution that’s needed to reopen the economy, said Catharine Sterritt, portfolio manager, equities for CIBC Asset Management.
“People are kind of pausing and going: ‘Okay, well, maybe it’s going to take longer’ and so you’re seeing that reflected in how Canadian equities are trading,” she said in an interview.
Sterritt added that Fauci’s testimony reinforced the belief that the reopenings are driven by economic considerations rather than the required response to the virus.
“What is being becoming clear is that it is taking longer to develop these testing regimes and the treatments and the vaccine is still further away,” she said, adding there are concerns about whether an adequate response will be possible in the fall to both the virus and the flu.
“So there’s lots of debate on if we do the reopen too quickly and people put down their guard, could we end up with a really terrible second wave.”
Sterritt also said the extreme fiscal and monetary stimulus is ballooning deficits while tax receipts are down because companies are shut down.
“And so what kind of tax consequences are we going to see at the other end and how much taxes are going up by.”
The S&P/TSX composite index closed down 222.06 points at 14,881.16.
Real estate was the worst-performing sector on the day, falling 3.4 per cent as a slower restart has implications because of the longer period of time where rent collections will be down.
“And those companies are higher-leveraged, so you’ve got more risk of having to do equity issuance or how is this period going to get bridged,” said Sterritt.
Likewise, the heavyweight financials sector was down two per cent because a slower restart means a longer period of credit loss provisioning, she added.
Ten of the 11 major sectors on the TSX were lower. Consumer discretionary was down 2.2 per cent as BRP Inc. and Spin Master Corp. were down six and five per cent respectively.
A six per cent drop in shares of Air Canada pushed industrials lower.
The materials index fell despite higher gold prices, though shares of SSR Mining Inc. and Alacer Gold Corp. gained as investors look another look at the merger announced Monday.
The June gold contract was up US$8.80 at US$1,706.80 an ounce and the July copper contract was down 2.1 cents at nearly US$2.36 a pound.
Energy was the sole sector to be positive on the day. It rose with higher crude oil prices as economic reopenings are positive for demand.
The July crude contract was up US$1.25 or five per cent at US$26.33 per barrel and the June natural gas contract was down a 10.6 cents at US$1.72 per mmBTU.
Smaller producers like Vermilion Energy Inc. and Frontera Energy Corp. led and were up about five per cent in response to the federal government’s loan program for large companies announced Monday.
There’s anticipation that oil and gas companies will take advantage of it despite the constraints on paying dividends, share buybacks and management compensation along with hitting carbon targets.
“That’s helping backstop the solvency risk in that group and some of the weaker players are having the biggest moves today,” she said.
In New York, the Dow Jones industrial average was down 457.21 points at 23,764.78. The S&P 500 index was down 60.20 points at 2,870.12, while the Nasdaq composite snapped a six-day winning streak by losing 189.79 points at 9,002.55.
The Canadian dollar traded for 71.35 cents US compared with an average of 71.37 cents US on Monday.