Canadian stocks fell to the lowest level in more than eight months after a gauge of U.S. consumer spending dropped unexpectedly, fueling concern the global recovery is slowing.
Bank of Nova Scotia (BNS), Canada’s third-largest lender by assets, lost 3 percent. Extendicare Real Estate Investment Trust (EXE-U), which owns senior-care centers in the U.S. and Canada, plunged 19 percent, the most among Canadian stocks, after cuts to Medicare payments. Saputo Inc. (SAP), the country’s largest food producer, erased 6 percent after reporting first-quarter profit that missed estimates.
The Standard & Poor’s/TSX Composite Index sank 193.31 points, or 1.5 percent, to 12,752.32 at 4 p.m. in Toronto, the lowest level since Nov. 17. Industrial and consumer discretionary companies had their steepest declines since August. Stocks extended declines after the U.S. Senate passed legislation on raising the nation’s debt limit.
“Investors are waiting for the next shoe to drop,” Irwin Michael, who helps manage C$1 billion ($1 billion) as a money manager at ABC Group of Funds in Toronto, said in a telephone interview. “It’s a bit of a hangover from what happened last week in the U.S. trying to settle the debt ceiling impasse.”
The S&P/TSX fell the most in a year last week as the U.S. reported a drop in durable-goods orders and the U.S. economy grew less than forecast in the second quarter. Lawmakers there failed last week to reach an agreement to raise the country’s debt ceiling. The U.S. House of Representatives approved a measure to do so yesterday, and the Senate voted to ratify the plan today.
The index traded at 17.9 times earnings, the lowest price- to-earnings multiple in more than a year.
The U.S. debt-limit compromise will avert a default even as it defers decisions on the nation’s finances to a bipartisan panel. It raises the national debt ceiling enough to fund the government until 2013 and threatens automatic spending cuts to enforce a goal of slashing $2.4 trillion over the next decade.
The U.S. Commerce Department figures today showed purchases decreased 0.2 percent, after a 0.1 percent gain the prior month. It was the first drop in consumer spending in almost two years. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November and the savings rate climbed.
Nine out of 10 groups in the S&P/TSX declined today. Industrial stocks fell 2.7 percent, while consumer discretionary companies lost 2.3 percent.
Financial shares in the Canadian equity index slid 2.2 percent today, the biggest fall since June 1. Manulife Financial Corp., Canada’s biggest insurer, declined 4 percent to C$14.57. Bank of Nova Scotia declined 3 percent to C$52.54. Royal Bank of Canada (RY), the country’s largest lender, fell 2.2 percent to C$50.29.
“People are thinking that once the economy starts to weaken, banks could be underestimating the bad loans on their books,” Michael said.
Health-care companies were the worst performers in the S&P/TSX, falling 4.2 percent as a group. Medicare, the U.S. health plan for the elderly and disabled, announced an 11.1 percent rate cut for nursing-home operators for next year. Extendicare plunged 19 percent to C$8.28, the most since October 1999.
Saputo lost 6 percent to C$42.05, the most since November 2008. The company, which manufacturers dairy and grocery products, posted profit in the first quarter of 61 Canadian cents a share excluding some items, missing the average analyst estimate by 2 cents.
Energy companies declined as the price of crude oil slumped to a five-week low. Suncor Energy Inc. (SU), Canada’s largest oil and gas producer, declined 3.7 percent to C$35.28.
Centerra Gold Inc. (CG) erased 4.5 percent, the most since March 10, to C$17.88. The mining company with operations in Kyrgyzstan and Mongolia was cut to “neutral” from “overweight” by Sabrina Grandchamps, an analyst at HSBC Securities USA Inc.
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