Canadian Stocks Fall to Halt Four-Day Gain as Oil Shares Slide

  • Health-care, energy stocks’ slide overshadow commodity gains
  • S&P/TSX was briefly top developed market before erasing gain

Canadian stocks fell, after a four-day advance that propelled the S&P/TSX Composite Index into a bull market, as falling health-care and energy companies overshadowed gains in raw-material producers.

The S&P/TSX fell 0.4 percent to 14,313.10 at 4 p.m. in Toronto, reversing an earlier gain of as much as 0.6 percent, briefly eclipsing New Zealand as the world’s top-performing developed equity market this year. The index is up 21 percent from its Jan. 20 low, trading near the highest level in 10 months after climbing out of a bear market on Friday. Trading volume today was about 16 percent higher than the 30-day average.

“When you look at the fundamentals, there are very few screaming opportunities so you get tweaks,” said Kevin Headland, senior investment strategist at Manulife Investments in Toronto. Manulife’s asset management unit manages about $325 billion. “The rally year-to-date has been all commodities. For Canada, I don’t think we’ll double returns from here but if we see some positive news out of oil prices, there might be more room to run.”

Canadian equities are neck-and-neck with New Zealand’s S&P/NZX 50 Index as the top performers in 2016 among 24 developed nations with about a 10 percent advance each. This is a stark contrast to 2015 when the S&P/TSX tumbled by 11 percent as one of the world’s worst equity markets. Raw-materials producers have boosted the broader rally this year, soaring 46 percent for the best year-to-date performance in three decades.

Commodities prices returned to a bull market this week, ending a five-year rout. Raw-material prices and resource-rich emerging markets broadly benefit when the dollar weakens, with prices denominated in the currency. The Bloomberg Dollar Index is trading at the lowest level in a month after May U.S. jobs data disappointed and Federal Reserve Chair Janet Yellen’s recent comments suggest a rate increase this summer is less likely.

The recent rally has magnified Canadian shares’ more expensive valuation relative to their U.S. peers. The S&P/TSX now trades at 21.9 times earnings, about 12 percent higher than the 19.6 times valuation of the S&P 500 Index.

Valeant Pharmaceuticals International Inc. dropped a fifth day and was the biggest drag on Canadian health-care stocks. The embattled drugmaker slashed earnings and revenue forecasts Tuesday after posting delayed first-quarter earnings short of analysts’ estimates.

Concordia Healthcare Corp. lost 3.5 percent. The stock has plunged more than 23 percent over five days after potential acquirers Blackstone Group and Carlyle Group walked away from the drugmaker, according to people familiar with the matter. The company said June 2 it is continuing to pursue strategic alternatives.

Suncor Energy Inc. dropped 2.8 percent for the steepest drop in a month. The Calgary-based oil-sands producer said it would sell about C$2.5 billion ($2 billion) in shares to cut debt and help fund acquisitions.

The S&P/TSX Energy Index fell today, even as crude extended gains to settle above $51 a barrel in New York. Industry data showed U.S. crude supplies declined, reducing a glut.

Raw-materials producers jumped 1.4 percent. Barrick Gold Corp. and Kinross Gold Corp. climbed more than 1.5 percent. Gold rose, pushing its advance for the year to 19 percent in the best start since 1979 as the dollar weakened, while silver reached the highest level since May 17.

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