Alamos Gold drops 18% as TSX falls on basic materials weakness

Canada's main stock index closed lower Friday, with basic materials stocks leading the decline. The S&P/TSX composite fell 111.92 points to 34,857.34.

Alamos Gold Inc. shares dropped about 18%, the steepest single-day loss among index components. Agnico Eagle Mines Ltd. lost roughly 2%. U.S. markets were closed for the Juneteenth holiday, which kept trading volumes light.

Brent Joyce, chief investment strategist at BMO Private Wealth, described two competing forces. On the geopolitical side, Israel and the Iranian-backed Hezbollah militant group agreed Friday to halt heavy fighting in southern Lebanon. Neither side immediately confirmed the truce. Joyce said the development was putting upward pressure on oil prices, which typically benefits energy stocks rather than gold miners.

The gold price itself was little changed in holiday-thinned trading. That left the sector's decline looking like a stock-specific event at Alamos rather than a broad commodity move. Alamos Gold carries an Alpha Score of 68/100, rated Moderate, in the Basic Materials sector. Agnico Eagle Mines has an Alpha Score of 58/100, also Moderate.

On the domestic front, Canada's banking regulator lowered its domestic stability buffer to 3% from 3.5%. The Office of the Superintendent of Financial Institutions said the move gives the country's six largest banks more flexibility to deploy capital. Joyce called it "another positive shot in the arm for the Canadian market and the Canadian economy." From a bank shareholder perspective, he said, "it is an opportunity for them to put more capital to active use in their businesses, which should drive profit down the road."

Canadian investors also digested a Statistics Canada report showing retail sales rose 0.5% to $73 billion in April, pushed higher by gas stations and auto dealers. Joyce said the Canadian consumer appears to be holding up better than expected.

On Wednesday, the U.S. Federal Reserve released projections showing policy-makers see the federal funds rate ending this year and the next two at higher levels than they had forecast a few months ago. Sébastien Mc Mahon, chief economist at iA Financial Group, said the market has been reacting well to the "more hawkish turn from the Fed." He noted that markets are now aligned with the view that rate hikes may be more appropriate than cuts. "Earnings are just so solid that we're not surprised at all that the market is that resilient, and we're still quite optimistic for the rest of the year," Mc Mahon said.

The TSX's decline Friday came despite the positive regulatory and economic data. The basic materials drag outweighed the bank-sector tailwind, at least for one session.