By DAVID BERMAN
Thursday, June 21, 2018
After a long period of sluggish performance, Canada's benchmark index has shaken off concerns about tariffs, crude oil prices, mortgage regulations and interest rates - and emerged to a record high.
The S&P/TSX composite index rallied to 16,420.95, up 104.42 points or 0.6 per cent. It has passed its previous high in early January, even as major U.S. stock market indexes continue to meander below record highs touched earlier this year.
The move by Canadian stocks caps a rally of more than 9 per cent from lows in February, when North American stocks were suffering some of their most harrowing declines in years. If market strategists are to be believed, the rebound should continue as Canadian companies benefit from strong commodity prices and exposure to a humming U.S.
According to Bloomberg, the consensus estimate of 10 strategists sees the index rising to 17,068 by year-end, implying additional gains of 3.9 per cent above the index's current level.
The gains since February reveal a remarkably broad-based rally - driven by banks, oil producers, auto-parts makers, railways, marijuana growers and even retailers - which suggests investors have confidence in just about every corner of the market.
Suncor Energy Inc. has bounced nearly 30 per cent over this period, adding nearly 150 points to the benchmark index and making the oil producer by far the single biggest contributor to the rally (in terms of points).
Toronto-Dominion Bank is the second biggest contributor, at more than 80 points. Canadian National Railway Co., Nutrien Ltd.
(the name of the combined Potash Corp. and Agrium Inc., after their merger) and Shopify Inc.
rounded out the top five contributors.
During Wednesday's gains, 10 of the 11 sectors within the index moved higher, reinforcing the rally's broad base.
The fresh high follows a period of tremendous uncertainty for the stock market earlier this year - and not all of these concerns have disappeared.
Bond yields had surged in reaction to inflationary pressures and anticipated interest-rate hikes by central banks, raising borrowing costs and weighing on stock valuations.
The yield on the U.S. 10-year Treasury bond rose above the 3per-cent threshold in April, but the yield has since subsided to a little more than 2.9 per cent. Similarly, the Government of Canada 10-year bond rose above 2.3 per cent in February but is now below 2.2 per cent.
However, the U.S. Federal Reserve is on track for another two rate hikes this year and the Bank of Canada has signalled its intention to raise its key rate in July, suggesting that the bond market's threat to the bull market hasn't entirely subsided.
Crude-oil prices that were once a drag on the massive Canadian energy sector are now powering the sector's profits. According to Bloomberg, oil and gas companies reported a 30-per-cent gain in their earnings in the first quarter.
However, although oil prices are well above year-ago levels, they have recently slumped about 8 per cent from 31/2-year highs a month ago, presenting a potential hurdle to further gains by the energy sector.
Meanwhile, trade remains a concern amid negotiations over the North American free-trade agreement, and belligerent comments from U.S. President Donald Trump have only increased tensions between the United States and Canada.
While lumber stocks, steel makers and auto-parts companies have largely avoided traderelated selloffs, they are by no means immune to them.
Similarly, worries about the health of Canada's housing market amid stricter mortgage regulations appeared to ease after the Big Six banks reported upbeat quarterly profits recently.
But the Bank of Canada continues to see high levels of indebtedness among consumers as a key risk to the economy.
Indeed, some voices are raising concerns that the declining value of the Canadian dollar, which has slipped to 75.18 cents against the U.S. dollar from 81.5 cents in early February, signals that financial markets are less than convinced that Canada can enjoy smooth sailing as the year progresses.
"The Canadian dollar has not been this weak in a year - but a year ago, [crude oil] was trading around US$42 a barrel, not US$65," David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, said in a note.
He added: "This really tells you about what the foreign exchange market thinks of Canada's economic prospects."
THE GLOBE AND MAIL, SOURCE: BLOOMBERG
THE GLOBE AND MAIL, SOURCE: BLOOMBERG