Marvin Ryder on markets bleeding out

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Markets were extending their losses into triple-digit territory by midday.

Marvin Ryder from the DeGroote School of Business joins us with his perspective on this.

Transcript

Annette Hamm, CHCH News: This is because our country’s economy is so resource-tied.
Marvin Ryder: Let me help you out if I can switch to professor mode for a second. The value of a stock, and therefore the value of the stock market is not based on the value of the company today, but based on our expectation of the future value of the company.

At the start of this week we had three key pieces of information which has caused analysts to review the value of all stocks traded on the stock market. The first of course is the continuing decline in the price of oil. 20 to 25 per cent of the stocks on the Toronto Stock Exchange deal in energy, and as we approach that $60 threshold and will likely break through it in the next week or two, people are revising down the future prospects for those firms.

The banks last week announced record profits, but at the same time they did this, they said we don’t think we can sustain that into 2015; so that sector, another 20 per cent of the stock market was being valued down.

And then we had news that China, although still strong on an annual basis at 7 per cent growth, if I look at the last 2 months and extend it forward, only growing around 4.5 per cent. We were expecting them to take up some of the slack as other economies struggled.

These analysts and and investors and all of these nice people who buy and trade stocks, it takes them several days to process all that information and do their evaluation. That’s why the market fell, at one point 500 points on Monday and finished at 330. It grew yesterday, went up 35 points today with some new data coming from OPEC saying that they are not going to slash their production volumes. Again we have seen this slide downward.

I hate to use the word going forward, but volatility. Expect to see more of this for the weeks ahead. We don’t know what OPEC is going to do, this is not truly a free market. We have a cartel and if they were to change their tune Friday, next Tuesday and then suddenly say, ‘You know what, we are slashing our production. We are going to cut the supply’, thus we are likely going to see the price rise. This could all turn on a dime.

For the moment, enjoy this. I can tell you gasoline prices are not as low as they should be. There will probably be another 3 or 4 weeks before we see the full impact of that. Consumers are, probably, getting a boost of about $20 to $25 a week savings. Now we are going to see what they spend it on, that could be the saving grace in all of this as we go into 2015.

CHCH: OK. Thanks so much Marvin for your insight. Marvin Ryder from the DeGroote School of Business.

Marvin: My pleasure.