TSX falls despite rise in pot stocks ahead of next week's legalization

This is a file image of various stocks.

TORONTO -- Canada's main stock index lost some ground on the first day of trading after Thanksgiving even though pot stocks rose again and led the TSX heading into next week's legalization of the substance.

The health-care subsector led the S&P/TSX composite index, rising 1.5 per cent. It was steered by Aphria Inc., Canopy Growth Corp. and Aurora Cannabis Inc., which gained between 3.4 and 6.8 per cent on heavy daily trading.

Cannabis stocks have been very volatile of late but have surged over the past three months.

"I think that's just sentiment related to the Oct. 17 legalization date," said Dominique Barker, Portfolio Manager, CIBC Asset Management.

Barker advised investors to be very cautious with the sector at this time as most companies are trading on hope rather than actual financial results.

"They're overreacting to very small news."

Overall, the TSX closed down 92.12 points Tuesday to 15,854.05, slightly above the low of 15,853.87 on 227.5 million shares traded.

Many of the other sub-sectors were essentially flat on the day with information technology leading on the downside, followed by base metals, gold, materials and consumer discretionary.

Forest products companies and autoparts makers had a down day.

Barker said there's negative sentiment towards U.S. homebuilding, related to labour shortages, low availability of lots and rising mortgage rates. But she said the number of new households is reinforcing strong fundamental demand.

In autos, companies like Magna International, Martinrea International and Linamar Corp. were down on concerns about slowing sales in China.

In New York, the Dow Jones industrial average lost 56.21 points at 26,430.57. The S&P 500 index was off 4.09 points at 2,880.34, while the Nasdaq composite was up 2.07 points at 7,738.02.

U.S. energy stocks rose as investors are starting to embed oil prices that are reflective of a more robust environment, Barker said. The Canadian sector was down about half a per cent as the differential between Western Canadian Select crude and New York-benchmark West Texas Intermediate oil has widened considerably.

The November crude contract was up 67 cents at US$74.96 per barrel and the November natural gas contract was down one tenth of a cent at US$3.27 per mmBTU.

The overall valuation gap between the S&P 500 and the TSX is back to pre-financial crisis levels, said Barker.

"It's like Canada is on sale. It's really cheap," she said of Canadian equities.

The Canadian dollar traded at an average of 77.13 cents US compared with an average of 77.30 cents US on Friday.

The December gold contract was up US$2.90 at US$1,191.50 an ounce and the December copper contract was up 3.95 cents at US$2.81 a pound.