About The Markets

About The Markets

If you feel that the current bear market on the Toronto Stock Exchange has been a particularly nasty one, you're right. It is already the worst in magnitude since the 1980-82 version, statistics show, and it isn't over yet. But in all fairness, this was preceeded by the greatest Bull Market in history too.

But there is light at the end of the tunnel, says Nick Majendie, senior vice- president at Canaccord Capital Corp. in Vancouver. "If history is any guide, the bear market could finally end in September, he says."

"An index such as the TSE 300-stock composite is generally considered to be in bear territory when it has dropped at least 20 per cent from its peak. There have been six Bay Street bear markets besides the current one since the late 1960s. They lasted 13 months on average. That is more than two months longer than the current bear market has dragged on."

In his calculations, Mr. Majendie used month-end closes. On that basis, the current bear market began at the end of August of last year when the TSE 300 stood at 11,224. (It subsequently rose a little higher, but had already turned lower by the end of September.)

The average decline during the periods of market malaise was 30.3 per cent. The current downturn has already exceeded that -- at 32 per cent, assuming that the index finishes the month near yesterday's close of 7,623.82.

What was the worst decline ever? Two of the six bear markets have seen worse declines. Between June, 1973, and September, 1974, the slide from peak to trough was 33.26 per cent. And between November, 1980, and June, 1982, the market fell 43.1 per cent.

Both exceeded, by a considerable margin, the fall in 1987, when the TSE dropped 26.1 per cent between July and November.

"There could be further turbulance," suggests Majendie. "I think around 7,600 is probably a good level to be making a commitment to equities, but I would do it in September; I wouldn't rule out some weakness between now and then."

George Vasic, strategist and chief economist at UBS Warburg Inc., says the TSE is "absolutely not" in a bear market.

Take Nortel out of the picture, and the remaining TSE 299 -- as Mr. Vasic calls the index he created -- has been in a narrow trading range for the past 10 months, he says. At last Friday's close of 8,108, it wasn't that far off its record high of 8,450 set in early June.

"One stock's collapse does not generate a bear market," he says.