July 19, 2021
OPEC deal to pump 2 million more barrels a day pushed down price of crude
The Toronto Stock Exchange had its worst day in months on Monday as rising COVID-19 infections around the world gave investors a sobering reminder that the pandemic is still far from over.
The S&P/TSX composite index lost more than 350 points, or almost two per cent, to 19,655 nearing the end of the trading day.
Less than a month ago, Canada's benchmark stock index was hitting all-time highs as optimism over the looming end of COVID-19 had investors pouring money into stocks poised to benefit from the reopening of the global economy. Even as recently as last week, the TSX was nearly 1,000 points higher than it is right now.
But the pandemic numbers have become a lot gloomier since then, as the delta variant has caused cases to rise again in the U.S., Europe and elsewhere.
"Risk aversion is firmly in place as the delta variant spread is triggering a flight to safety as global economic concerns intensify," said Edward Moya, a strategist with the investment firm Oanda.
The price of oil cratered to $66 a barrel, losing almost eight per cent, after the oil cartel known as OPEC announced over the weekend it would soon pump two million more barrels of oil every day. Oil companies make up a big chunk of the TSX, so the sell-off in those shares made a bad day even worse for the index.
"There was a general market sell-off related to renewed worries about COVID and delta," said Rory Johnston, managing director with the investment firm Price Street.
"Oil is a very classic risk asset, so it's going to ease off a bit," he said in an interview.
The sell-off was even more pronounced in the U.S., where the Dow Jones Industrial Average was at one point down by almost 1,000 points, or just shy of three per cent.
Randy Ollenberger, an analyst with Bank of Montreal, said the sell-off makes sense.
"There's a lot of nervousness with what's going on with the variants," he said in an interview. "We are not completely out of the woods yet, so we are going to have these days."
Sectors that stood to gain the most from getting back to normal — like travel, tourism, energy and commodities — were hit hardest.
"Travel and hotel stocks are getting crushed today as concerns grow that crude demand outlook might have overly priced in a normal summer abroad," Moya said. "Jet fuel demand will struggle as international travel is not happening anytime soon."
Others weren't so gloomy.
Barry Schwartz, chief investment officer with the Toronto-based Baskin Financial, said in an interview that Monday's sell-off is likely a temporary blip on the broader path toward economic recovery. He notes that prior to Monday's sell-off, the TSX was up by almost 20 per cent this year.
"Things got ahead of themselves," he said. "The economy is rebounding, [but] it's not going to be in a straight line."
He blamed most of the sell-off on automated trading algorithms programmed to follow momentum — and end up feeding on themselves.
"Even with delta, you have to be much more positive on the world than where we were a year ago."
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