The Canadian stock markets finally snapped a 3 day losing streak yesterday as the main index climbed almost 140 points. The key materials, energy and financials sectors led a very broad based stock market rally.
The materials and energy groups began the session lower, spurred by softer commodity prices but both eventually gained momentum recovering a portion of Wednesday’s steep losses. The energy sector finished ahead 1.52% as crude prices climbed on renewed economic optimism. Materials gained 1.41% assisted by strength in gold prices. Financial led with a gain of 1.66% and the overall index was up 1.44%.
I would not expect a lot of activity today as investors get an early start on the 1st long weekend in Canada with Victoria Day on Monday (but the U.S. and global markets will be open).
The rebound comes after the TSX posted its first 3 day retreat in more than a month, starting the day the S&P/TSX Composite Index was up about 30% on a run of weekly gains, after hitting a 5 year low on March 9th.
In the United States, stocks also rose as investors returned to financial and technology shares on bets the recent rally could have more room to grow after a brief pullback earlier in the week. The impressive gains or massive surge in U.S. markets over the past 2 months has made investors who missed the rally anxious to get back into stocks (according to some market observers). It is clear that there is a lot of cash sitting on the sidelines (some $4 trillion in U.S. money market funds which is almost 50% of all assets invested in Mutual Funds – see the presentation for more details).
The Dow Jones industrial average 0.56%, the Standard & Poor’s 500 Index added 1.04% and the Nasdaq Composite Index added 1.50%. Financial shares gained, including JPMorgan and Bank of America, bank stocks have been a large part of the recent rally as investors bet that the sector had seen the worst of the credit crisis.
Data showed the number of U.S. workers filing new claims for jobless benefits rose more than expected in the latest week, pushed up by plant shutdowns related to Chrysler’s bankruptcy. The report came after Wednesday’s figures showing consumers were still reluctant to spend and reviving worries over the length of the recession after optimism that the downturn was showing signs of abating or at least there we strong signs of some ‘green shoots’.
United Technologies, the world’s largest maker of elevators and air conditioners, said order rates had stabilized and it was starting to see early signs of recovery in China. Wal-Mart Stores reported flat 1st quarter earnings in line with analysts’ estimates. Its chief executive said overall business at the world’s largest retailer was stable, adding that until unemployment eased, it remained cautiously optimistic about a timetable for the economic recovery.
We will continue to see the auto manufacturers cut their operations and their dealerships by 25 to 30% which will keep some upside pressure on the unemployment rates in the United States and Canada. We are not out of the woods yet but things would have to get significantly worse for stock markets to hit their March 9th lows (the banking index would need to drop by 50%). This does not mean there won’t be corrections from time to time but if the financial system and the credit markets have truly hit bottom then in turn, stock markets should have a pretty good foundation to build upon. Consumers and the real economy will provide sufficient headwinds and volatility will remain elevated during the remainder of 2009.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
