Investor sentiment may be turning due to poorer economic news, says William Chin, portfolio manager at Caldwell Investment Management, who sees more downward pressure being applied to the markets.
Poor performance on the S&P/TSX Composite Index on Monday came as investors are apparently cautious ahead of another interest rate increase in the US, said to be in the offing this week. Canada’s main stock index dropped 121 points in trading on Monday, or 0.78 per cent.
Meanwhile, US markets have also taken a hit, with the Dow Jones Industrial Average down by 1.35 per cent on Monday, the S&P 500 falling by 1.42 per cent and the NASDAQ tumbling 1.84 per cent. Those US numbers come after the Dow, the S&P and the NASDAQ all fell by one per cent or more last week.
The tech-heavy NASDAQ is feeling the heat from Facebook’s struggles amid regulatory concerns. Facebook’s shares fell 6.8 per cent on Monday, its worst single day since early 2014.
Weaker oil prices are also playing a role in the downturn in the Canadian markets, while longer term, the threat of a significant correction coming sometime this year still looms.
Chin says that one should never count out the power of investor sentiment to turn the market.
“I have a suspicion that economic data will continue to moderate, adding a little bit more to the downside pressure,” said Chin in conversation with BNN on Monday. “But that by itself is not definitive. We have to look at investor sentiment, how they react to political news. Remember, as investors, we are not judges in Olympic events, we are judging the judges, this is what Keynes has to say. So, be very careful and watchful about the sentiment of the market.”
Chin says there a number of indicators to watch out for on the issue of a potential correction, one of them being how strongly investors are responding to news on the political front, of which there has been plenty since US President Donald Trump took office.
“Nobody knows the future but the good news is that investing is like driving a car at night with the headlights on: you navigate the market one turn at a time,” he says. “One signpost that there may be a turn coming up concerns investor reaction to political events in the US. So far, they don’t really care. If that continues, then maybe investors are bullish enough that the market will go higher.”
“We are seeing the ground shift a little bit … but as investors start to pay more attention and react negatively to whatever disruptions are in the political scene, maybe a turn is coming up,” he says.
Another signal of a possible market correction concerns the central banks in Canada and the US, where interest rates hikes if carried out too quickly can put a damper on growth, says Chin, while a third stems from economic data.
“If the economy continues to do well, then we’re fine,” says Chin. “We are seeing some weaker data recently, if that continues then it’s maybe not so good [for the markets].”