It’s tempting to plaster over a market crash when it’s followed so quickly by a rally. But last Thursday revealed some deep cracks in the TSX. Let’s take a brief look at some of the selloff’s best and worst performers as it happened.
Gold and consumer staples stocks are still outperforming
Canadian Natural Resources was among the worst-hit names last Thursday, with the energy giant down 10%. The energy selloff had other victims, too, with Baytex down 20%. Cannabis stocks also took a hit, with Cronos Group down 14%. This wasn’t the only high-flying pot stock affected, with Aphria down 11%. Embattled aerospace player Bombardier shed 17%, while another pandemic-hit name, Cineplex, lost 10%.
On the other end of the spectrum, only four stocks remained in the green. HEXO and Jamieson Wellness outperformed in the cannabis space. Meanwhile, the TMX Group just about managed to keep its head above water, while Transcontinental gained a few points. Other names succumbed to the selloff but managed to avoid the worst of it. Barrick Gold dropped 1.7%, for instance, while Alimentation Couche-Tard only lost 0.76%.
Of these stocks, it’s important to note that three are being delisted from the S&P/TSX Composite Index. Those stocks are Baytex, Bombardier, and HEXO. HEXO has been stringently tested by the markets of late and found wanting. While the stock is up 102% over the last four-week period, it’s nevertheless down 84% for the last 12 months. Baytex and Bombardier have been similarly volatile.
Investors should get used to increased volatility. Stocks have been performing as though the real-world uncertainties of the economy weren’t happening. Investors helped to pump a bubble that finally ruptured Thursday on the back of bleak pronouncements from the U.S. Fed and the OECD. The TSX lost 4.1% as the market corrected. Barrick and Alimentation Couche-Tard’s resilience, however, signifies two key safe-haven sectors to buy before this cycle repeats itself.
Market turbulence brings its own opportunities
However, the bargain hunters were back buying Friday, giving contrarians yet another opportunity to trim underperforming names from portfolios. Markets are likely to exhibit these kinds of post-rally troughs so long as earnings fail to reflect share prices. Likewise, rallies are likely to continue getting pumped up so long as authorities push hopeful narratives in the bid to reopen industries.
Long-term investors and economists alike should be glad, though — overvaluation is dangerous right now. Investors have been overheating the markets, ignoring economic warnings signs, and buying into high-risk names. Meanwhile, commodities are still undervalued. To call the markets topsy-turvy is an understatement. But so long as the disconnect between the markets and the economy persists, so too does the threat of another market crash.
One of the biggest risks to the markets right now is myopia. The markets are remarkably short-sighted, which could make a big crash even more damaging. Instead of rushing in for short-term gains, then, the careful dividend investor should keep calm and carry on holding. Meanwhile, rallies and selloffs are useful to such low-risk, long-range shareholders since they offer ways to optimize a judiciously chosen basket of stocks.
