TORONTO -- Canada's main stock index ended its worst month of the year by falling on growing concerns about an economic slowdown amid U.S. plans to impose tariffs on Mexican imports.
The S&P/TSX composite index closed down 51.75 points on Friday to 16,037.49. That's 1.2 per cent down from a week ago and 3.4 per cent lower in the month of May.
Still, the Toronto market is 12 per cent higher so far in 2019 after a very strong start to the year.
The majority of market watchers would be happy with the year-to-date gain after withstanding December's collapse, says Kevin Headland, senior investment Strategist at Manulife Investments
"Things aren't necessarily bad but they're not as good as perhaps had been hoped and I think that's what the market has reacted to," he said in an interview.
Headland said investors, especially in the United States, reacted very negatively to overnight news from U.S. President Donald Trump that he plans to expand his global trade war by imposing tariffs on all Mexican imports to pressure the country to do more to stop migrants from entering the U.S.
The move also runs the risk of hampering ratification of the revised USMCA trade deal among the U.S., Canada and Mexico, observers have noted.
However, Headland said investor angst goes beyond trade skirmishes with Mexico or China.
"It's not just reacting to another set of tariffs, it's just more indication that there's more pressure on the global economy," he said. "I think it's a read through that things are definitely slowing down."
Data has backed that up. China's manufacturing activity contracted in May while the Canadian economy remained sluggish in the first three months of the year, rising just 0.4 per cent, and giving the weakest back-to-back quarters since 2015.
Investor concerns can be seen in bond yields falling and the yield curve inverting, which heightens concerns about a potential recession.
"Now we're probably seeing the risk of a recession pick up and the recession would likely be in the next 12 to 18 months," he said.
Ongoing weak data could also prompt the Federal Reserve and the Bank of Canada to cut interest rates.
"It's very rare to see rate cuts before recession and perhaps this is a new environment or a less normal environment where perhaps we see rate cuts and we avoid the actual proverbial recession."
Eight of the 11 major sectors of the TSX decreased on Friday, led by health care, energy and financials.
Energy fell 1.14 per cent as the price of crude dropped to its lowest level since February on worries about reduced global demand and higher supplies.
The July crude contract was down US$3.09 at US$53.50 per barrel and the July natural gas contract was down 9.3 cents at US$2.45 per mmBTU.
That's bad for Alberta's oil patch, where Encana Corp. shares lost 4.4 per cent.
The heavyweight financials sector lost more than one per cent with Manulife Financial losing two per cent and Great-West Lifeco Inc. off 1.8 per cent.
Materials led the three sectors that rose, helped by higher metals prices. Barrick Gold shares gained 5.6 per cent.
The August gold contract was up US$18.70 at US$1,311.10 an ounce and the July copper contract was down 1.4 cents at US$2.64 a pound.
The Canadian dollar traded at an average of 73.93 cents US compared with an average of 74.07 cents US on Thursday.
In New York, the Dow Jones industrial average was down 354.84 points at 24,815.04. The S&P 500 index was down 36.80 points at 2,752.06, while the Nasdaq composite was down 114.57 points at 7,453.15.
