TSX and Dow Jones bounce back somewhat after massive Monday sell-off
Monday was one of the bleakest days ever on the stock exchanges
A day after one of their worst days in history, North American stock markets bounced back on Tuesday as bargain hunters did a little cautious buying on the Toronto Stock Exchange and the New York Stock Exchange.
The TSX closed up 324 points, or almost three per cent, while the Dow Jones industrial average fared even better, up by 1,048 points, or five per cent. Both jumped out to big gains in the morning, before giving up most of them — and then seesawing up again.
That was a marked departure from Monday, when the TSX plunged 10 per cent and the Dow lost almost 13 per cent as investors woke up to the reality that the coronavirus has the potential to wallop the North American economy.
"Surprise, surprise, there was bottom fishing. Investors went bargain hunting," said Francis Lun, a stock analyst in Hong Kong.
The cautious buying on Tuesday stemmed from hopes that governments at various levels are standing ready to do whatever it takes to keep the economy running amid widespread shutdowns and quarantines.
Government officials in Ottawa are expected to unveil details of a multibillion-dollar stimulus plan on Wednesday that is likely to include support for workers and businesses waylaid by virus-related shutdowns.
Closing businesses can help slow the spread of the virus, but it also takes cash out of the pockets of companies and workers.
From parked airplanes to empty restaurants and idled factories, nobody knows when economies might revive or even when countries will be able to get the spread of the virus under control. That has filtered down into stock markets as just about every sector is worth much less today than it was a few short weeks ago, with the world waking up to the prospect of a worldwide recession.
"The recession we expect now is going to be much deeper – and lasting for at least one quarter more – than our previous forecast," said economist Stephen Gallagher, with French investment bank Societe Generale. "The pullback could be deeper as cancellations and closures spread."
Wall Street's so-called fear gauge, the Cboe Volatility Index, or VIX, almost doubled on Monday to 82.69. That's higher than it was during the 2008-09 financial crisis. The VIX was slightly lower Tuesday but wild swings up and down in markets show volatility is very much the new normal at the moment.
"Markets always fear what they cannot measure," TD's economics team wrote in a note to clients Tuesday. "Today's environment is riddled with uncertainty, complicated by a large economic shock from business and household behavioural adjustments."
The Canadian dollar was holding steady just above the 70-cent US level on Tuesday, down by roughly a full cent from Monday. The loonie was dragged down by oil prices that were down $1.75 US, dropping to $26.95 US a barrel. That's almost half the price those same barrels were trading for barely a month ago.
In addition to oil, the loonie sold off because investors were pouring money into U.S. dollars, which historically go up in value during times of uncertainty as investors flee for assets they think are safe.
"Stress here is helping lift the U.S. dollar," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
With files from The Associated Press and Reuters
