TMXmoneyTMXmoney - invest with insight

TSX lower, traders hope earnings can justify run-up, Lululemon warns on earnings

Malcolm Morrison, The Canadian Press

A taxi across Bay Street in Toronto's financial district in Toronto in a 2012 file photo. THE CANADIAN PRESS/Nathan Denette
A taxi across Bay Street in Toronto's financial district in Toronto in a 2012 file photo. THE CANADIAN PRESS/Nathan Denette

TORONTO - The Toronto stock market was lower Monday afternoon as traders wondered about the resiliency of U.S. markets and took in a profit warning from athletic wear retailer Lululemon Athletica.

The S&P/TSX composite index fell 53.53 points to 13,693.99, with the market finding some support from the mining sectors.

The Canadian dollar was higher after five straight losing sessions, up 0.28 of a cent to 92.01 cents US as the Bank of Canada said its winter business outlook survey shows some positive signs for exports and investment. However, the central bank says the business survey doesn't appear to suggest a significant strengthening for the economy.

Losses on U.S. markets gained momentum as comments on the state of the U.S. markets from Goldman Sachs' chief equity strategist gave traders pause just as the fourth-quarter earnings reporting season starts to heat up this week.

The Dow Jones industrials declined 126.16 points to 16,310.89, the Nasdaq was down 36.15 points to 4,138.51 and the S&P 500 index drifted 15.5 points lower to 1,826.87.

This earnings season follows a strong 2013 where the S&P 500 rocketed about 30 per cent, helped in large measure by Fed stimulus. Investors want to see if strong earnings and revenue can justify that gain and push stock prices higher but Goldman Sachs' David Kostin warned that the S&P 500 index's valuation is "lofty by almost any measure."

"The way to think about the market is the level of earnings and the multiple which should be applied to that earnings growth," Kostin told Bloomberg Television.

"Those really are the fundamental drivers of the level of U.S. equity markets this year. Earnings growth is likely to be the principal source of return for U.S. investors because, historically speaking, the market is trading at a pretty elevated level."

Traders will take in reports from major U.S. financial institutions including JPMorgan Chase, Wells Fargo and Bank of America along with market bellwethers including General Electric and chip giant Intel.

Investors also continued to digest Friday's American government employment report, which showed that only 74,000 jobs were created in December. That missed estimates for at least 200,000 jobs and raised speculation about how quickly the Federal Reserve may move to end its key stimulus program, its massive monthly bond purchases.

Meanwhile, shares of Lululemon Athletica (Nasdaq:LULU) plunged 16.7 per cent to US$49.66 in New York after the Vancouver-based company said fourth-quarter revenue and profit will be significantly lower than its previous estimate. Lululemon’s new revenue range is between US$513 million and US$518 million, about $22 million lower than the previous guidance, saying sales were on track through December but have been significantly below target this month.

The company’s new estimate for diluted earnings per share is between 71 and 73 cents per share, a reduction of seven cents.

"When you’re a hyper growth type of company and your stock is priced for that growth, when you stumble, it can be quite challenging," said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.

"Not to say that Lulu can’t get back on their feet here but they’re certainly going to be dealing with not only butting up against challenging sales trends but also the high expectations that have been built over the past couple of years."

The energy sector led TSX decliners, down 1.2 per cent as February crude on the New York Mercantile Exchange slid 96 cents to US$91.76 a barrel. Suncor Energy (TSX:SU) lost 69 cents to C$37.27 while Canadian Natural Resources (TSX:CNQ) advanced 39 cents to $35.80.

The tech sector fell 0.7 per cent. BlackBerry Ltd. (TSX:BB) has hired Eric Johnson, a senior executive from German global software giant SAP, as president of global sales for the smartphone company. He and BlackBerry chairman and CEO John Chen worked together previously at Sybase, which Chen turned around and grew before its sale to SAP for US$5.8 billion in 2010. BlackBerry shares fell 42 cents to $9.14.

Industrials were a major source of weakness as as Canadian Pacific Railway (TSX:CP) lost $2.49 to $164.58.

The gold sector was ahead 1.7 per cent as February bullion edged $4.20 higher to US$1,251.10 an ounce. Barrick Gold (TSX:ABX) faded 39 cents to C$19.43.

Goldcorp Inc. (TSX:G) is making a $2.6-billion cash and stock takeover play for Montreal-based Osisko Mining Corp. (TSX:OSK). Goldcorp. is one of the Canada’s largest gold producers and says the acquisition of Osisko would provide it with a major mine in Quebec and other assets with growth potential. Goldcorp shares lost 35 cents to C$24.94 while Osisko jumped 20.7 per cent to $6.24.

The base metals sector gained 0.7 per cent as March copper rose one cent to US$3.35 a pound.

Capstone Mining (TSX:CS) gained 14 cents to C$3.10 as the company released production results from its Pinto Valley, Cozamin and Minto mines. Capstone said it met overall 2013 copper production targets, "with outperformance at Pinto Valley and Cozamin comfortably offsetting lower production at Minto."