TORONTO - The Toronto stock market is likely in for further losses this week as commodity shares continue to retreat, partly on worries that demand will be ravaged by what many investors fear will be a serious slowdown in the American economy.
But it is likely that TSX index losses will at least be contained by a newly resurgent financial sector.
After months of weakness, that group advanced last week after three big U.S. investment banks -- Lehman Bros., Morgan Stanley and Goldman Sachs -- delivered better-than-expected earnings figures, after the U.S. Federal Reserve backed up JPMorgan Chase's bargain-basement pickup of Bear Stearns.
Also, Bank of Montreal (TSX:BMO) restructured the troubled Apex and Sitka commercial paper trusts, a move that insulates BMO from hundreds of millions of dollars in potential further writedowns connected to the trusts, as well as from possible litigation.
"I really do think we're seeing a rotation in the market,'' said Andrew Pyle, investment adviser at ScotiaMcLeod in Peterborough, Ont.
"The sectors that were red hot and couldn't be justified anymore are the ones that are getting hit while others that were hit probably more than they should have are now coming back,'' Pyle said.
"That's a classic rotation of the market, and actually it probably signifies that the overall market has probably found a bottom close to here.''
Overall, the Toronto market had a dreadful week, sliding 3.5 per cent as producers of base metals, oil and gold tumbled.
Crude slid below US$100 a barrel at one point Friday, while gold had a tough time keeping above US$900 an ounce.
The slide in commodities also chewed up the Canadian dollar, which fell 3.69 cents US during the week -- and is likely in for further declines as commodities fade.
The commodity stocks had helped the TSX composite index recover a huge chunk of losses after its most recent trough of 12,132 Jan. 21.
Investors were anxious to find alternative places to invest as a long series of writedowns of securities linked to the collapsing U.S. mortgage sector spurred an exodus from bank stocks.
From Jan. 21 to March 7, the TSX energy sector charged ahead 16.5 per cent, the base metals sector surged 29.6 per cent and golds jumped 15 per cent, while financials drifted 2.6 per cent lower.
All three commodity sectors lost ground this past week, while the TSX financial sector registered a modest gain.
"To be honest, I think this is a bubble,'' Pyle said of the commodities buildup. "We can come up with all these different fundamentals why oil should be at $100, why gold should be at $1,000.
"But at the end of the day, I think you find investors really couldn't explain anymore why they were owning those commodities at those levels.''
However, while a bottom may be close, many analysts are wary about the likelihood of more losses before things improve.
In the U.S., the Dow Jones industrial average this past week retested and bounced off its January low of just under 12,000. The Toronto market still is several hundred points above its January low, a level it could revisit soon.
"The problem for the TSX is we've had this successful retest in the U.S.,'' said John Johnston, chief strategist of the Harbour Group at RBC Dominion Securities. "Maybe with commodities down we get a successful retest in Canada, which tells us we're heading down to 12,000.''
ScotiaMcLeod's Pyle also pointed out investors should be wary of investing in the Canadian market through broad index funds at this point because of the dominance of a very few sectors, especially oils and banks.
"Canada is a very bad place to do indexing,'' he said. "The ones that won't do very well are ones that say, `Give me the TSX, whatever you have, just give it to me.'
"That's the problem, and that's the problem we're going to have to work through.''
