Expect some negative growth during earnings season

Canadian and U.S. markets had it rough last week. Also, analysts have been cutting back expectations for earnings season. That and more from Prab Sagoo, associate director at Nasdaq Advisory Services in his weekly commentary.

Highlights:

• The TSX finished last week in bear market territory, and U.S. markets had one of their worst weeks on record. Volatility is likely to be a dominant theme through 2016.
• Last week’s losses came in response to multiple concerns, including about Chinese and global growth, and about continued weakness in oil prices and geopolitical problems in North Korea, Saudi Arabia and Iran.
• We ended last week with all TSX constituents showing losses of more than 10% from their two-year highs. Meanwhile, 18% were down in bear market territory (20% decline), 40% are off by between 20% and 50%, and almost a third of TSX constituents have lost almost 50% from their two-year highs.
• With oil prices hitting multi-year lows, Energy and Financial stocks are some of the most significant weights on the index, with the two sectors accounting for more than 50% of the index weighting. They are likely to continue to weigh on the index as long as the oil price outlook remains as bearish as it is.
• Analysts have been quickly cutting back expectations for the upcoming earnings season, with some expecting negative growth amongst the broader index constituents.
• Investors will be closely watching the Bank of Canada, which meets next week. If sustained oil weakness has started to affect the broader economy, additional measures could be announced by Governor Stephen Poloz.
• Given the sharp losses we’ve seen already in 2016, we may see some upward index movements. But unless they’re sustained high volume events, expect the possibility of a quick retracement downwards.

Staff

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