Celtic Exploration Ltd. and Bank of Montreal are among companies driving Canadian stock-market swings to an eight-year low after the U.S. avoided the so-called fiscal cliff and Europe’s debt crisis subsided.
Historical volatility for the Standard & Poor’s/TSX Composite Index has fallen 58 percent to 6.56 in the 12 months through yesterday, reaching the lowest level since February 2005, according to 30-day data compiled by Bloomberg. The magnitude of stock swings has fallen for 193 of the 244 companies in the Canadian equity benchmark.
“Our sense is volatility will come out of the market in favor of more stability,” Ed Sollbach, a strategist with Desjardins Securities, said from Toronto. “Companies can plan in a better operating environment, they can move ahead and the economy can grow. It’s positive.”
Financial stocks make up six of the 10 least-volatile stocks in the S&P/TSX of the past 30 days, including four banks and two real-estate companies, data compiled by Bloomberg show. Swings among the 10 stocks has fallen 63 percent over the past year, led by a 93 percent drop in volatility at Celtic.
Lower volatility has meant gains for Canadian stocks in seven of the past nine weeks amid signs of stronger growth in China, the world’s biggest producer of commodities, and the improving global economy. More than 41 companies in the S&P/TSX are scheduled to report earnings in the next three weeks.
While the S&P/TSX climbed 6.3 percent in the 42 trading days through yesterday, the index hasn’t risen or fallen more than 1 percent in that period, according to data compiled by Bloomberg.
The benchmark Canadian equity gauge rose 0.2 percent to 12,824.63 in Toronto today. The index is up 3.2 percent in 2013.
Global economic data are helping to ease volatility. China’s economy grew 7.9 percent in the fourth quarter of 2012, exceeding economists’ forecasts, and snapping seven straight quarters of deceleration as new leadership takes the helm in Beijing led by Xi Jinping. U.S. housing starts climbed 12.1 percent in December to an annualized 954,000, the highest since June 2008, a government report showed last week.
Prior to this current market calm, the longest stretch of trading days with less than a 1 percentage point change was for 44 days at the beginning of 2005. During that time, the S&P/TSX gained 9.8 percent, and ended the year with a 22 percent advance amid a rally in energy producers as crude oil surged 40 percent.
“A high-volatility environment is not sustainable,” Sollbach said. “The kind of steady back-and-forth market we’re seeing now where it’s creeping up, that is much more sustainable.”
The global economic recovery remains fragile and equity-market volatility may increase in mid-February should U.S. debt ceiling talks fail, said Sollbach. Swings may also increase should the European sovereign credit crisis worsen or conflict in the oil-rich Middle East intensify, he said.
“Some of the economic clouds have parted,” said Douglas Porter, deputy chief economist with BMO Capital Markets. “It suggests smoother sailing for earnings and the Canadian economy, but with the large caveat of no outside force rolling into town.”
U.S. politicians are debating raising the nation’s legal borrowing limit, currently set at $16.4 trillion. The Treasury Department has been using emergency measures since the end of December to prevent a breach. The U.S. government makes about 80 million payments each month, including for Social Security, veterans’ benefits, defense contractors, law enforcement and income-tax refunds.
Sadiq Adatia, chief investment officer with Sun Life Global Investments, said investors should buy financial and telephone stocks that pay dividends, with strong balance sheets and steady earnings. Commodity companies, including energy and raw-materials producers, remain risky amid Canada’s slowing housing market and record-high levels of consumer debt, he said.
“The Canadian market will have some tough days in 2013 as people return to the market,” he said in an interview from Toronto. Adatia’s firm manages about C$6 billion in client assets. “Low volatility means markets have stabilized and returned to a focus on fundamentals. That’s when you get rewarded for doing your homework.”
Celtic jumped 15 percent in 2012 after agreeing to a C$2.9 billion sale to Exxon Mobil Corp. in October which helped make it the least volatile stock on the S&P/TSX of the past 30 days. Bank of Montreal, Canada’s fourth-biggest bank by assets, was the second least volatile stock.
Research In Motion Ltd., maker of the BlackBerry 10 line of smartphones, has been the most volatile stock of the past year. The swings have risen 104 percent, with shares of RIM moving more than a percentage point in eight of the past 10 trading days. The stock slumped 58 percent in the first nine months of 2012, before rallying 90 percent to end the year.
Low volatility “is indicative of a bull market just starting to get going, the second phase of a buy-in when you see the longest and widest participation,” said Jeff Parent, an investment manager with Toronto-based Quadrexx Asset Management Inc. The firm manages about C$100 million. “It’s the beginning of the middle, not the feverish buying towards the end.”