American stocks volatile, Canadian stocks cannot overcome long-term decline

This is the second week of volatile action on the American stock market. Ironically, the biggest daily drop in the Dow Jones Industrial Index’s history, by 1,175 points on Monday, February 5, was triggered by good economic news. The strong jobs report (200 thousand jobs created in January and higher than expected wage growth in the U.S.), instead of fueling the stock market growth fueled the expectations of aggressive interest rates hikes while low interest rates and abundant financial liquidity have been the major factor of the bull market since 2009.

And good economic news kept weighing on the U.S. stock market. The markets dropped on the morning of Wednesday, February 14, when they found about the stronger than expected American inflation in January with consumer prices rising 0.5% over December. This only strengthened expectations of further rate hikes.

But this kind of reaction to good economic news should not be taken as a long-term verdict for the stock market. The continuing economic growth in the U.S. may well bring organic stock market growth down the road.

The correction on the U.S. stock market spilled over to the Canadian market. The decline of the S&P/TSX Composite Index since February 2 was not as deep – the index dropped by 3.7% in one week. However, since mid-January, the leading Canadian stocks were down by 8%. Over the past 12 months they are now down by more than 3%, while the main US indices are up significantly. 

Source: yahoo.finance.com

To explain this discrepancy, market experts from leading Canadian financial organizations, interviewed recently by CBC, point to the lower diversification of the main Canadian stock index and the economy as a whole as compared to the US indices and economy. Among recommendations on how to improve the country’s economic and market performance, the experts insist that Canada needs to invest more in research and development, and reduce its consumer debt.

Ukrainian Credit Union Limited