A Grim January
It wasn’t a good month for the economy, oil, the stock market, the loonie and just about everything else. If the “January effect” is real, it does not bode well for the rest of the year
The Economist has named Toronto as the best city in the world in which to live, with Montreal second. That was about the only good news we received in January, The rest of the month was a downer, big-time. It’s now gone, and good riddance.
January is a bleak enough month to begin with. We didn’t need a ton of bad economic news on top of the lousy weather. Here are just a few of the blows that hit us.
Oil continued to drop. At first it was believed that $60 a barrel (West Texas Intermediate, figures in U.S. dollars) would be the floor. Then $50 a barrel. Now we’re about $48 a barrel and that only thanks to a late-day rally on Friday. There’s even talk the price could drop below $40. The OPEC countries are actually increasing production, pumping out about 30.4 million barrels a day in January. That has helped to push U.S. inventories to their highest point since the 1930s.
This is bad news for Canada, which JPMorgan Chase analyst Kevin Hebner dramatized with his widely reported comment: “There will be blood”. Mr. Hebner may be guilty of hyperbole, but there’s no escaping the reality that the dramatic price drop has already resulted in hundreds of job cuts, slashed capital expenditure budgets, and hammered government budgets in the oil producing provinces and Ottawa. Federal finance minister Joe Oliver was so confounded by the rapidly changing landscape that he had to postpone his budget speech until April.
Growth stalled. Just to show how bad things are, Statistics Canada reported on Friday that our GDP fell 0.2 per cent in November, even before the oil price collapse really took hold. Especially worrisome was the decline in manufacturing, which was supposed to offset some of the slack in the energy sector. Statscan said output dropped 1.9 per cent during the month, with durable goods off by 1.8 per cent. “Decreases were most notable in the manufacturing of machinery, fabricated metal products and primary metal,” the agency said.
In the light of all this grim news, perhaps we should be thankful that stocks didn’t do even worse than they did. The S&P/TSX Composite Index finished the month with a fractional gain of 3.3 per cent, thanks largely to a strong performance from the gold stock, which were up 33.2 per cent. Believe it or not, that miniscule advance was better than the Dow and the S&P 500, which were down 3.7 per cent and 3.1 per cent respectively for the month.
If you’re a believer in stock market myths, the New York results are especially worrisome. According to the January effect theory, stock prices are supposed to rise in the first month of the year. Historically, the effect is felt most strongly in third year of a presidential term, which this is.