Canada’s main stock index finished lower yesterday as investors booked some profits after 6 straight days of gains and a weaker gold price weighed on the materials sector. The mining heavy materials sector dropped 1.18% as gold prices slipped on anti-inflation comments by the U.S. Federal Reserve (see below).
The S&P/TSX composite index closed down 0.24% after gaining as much as 57 points early in the day while 5 of the 10 main sectors were lower. It is not unexpected to see some profit taking, because we had a great rally in that last couple of weeks. Investors are struggling with how far stocks should appreciate in value, in advance of a possible economic recovery, and yet they have already come so far in a very short timeframe.
Corporate earnings results is just getting under way in Canada, but in the United States, a number of big companies have reported surprises to the upside which is always helpful. Companies are reporting higher than expected profits but lower revenues and lower costs. Companies still need to generate long-term sustainable revenue growth since you can only cut costs so far.
In the United States, heavy equipment maker Caterpillar posted stronger than expected earnings and raised its full year outlook, citing signs of global economic stability. Stocks rose in the United States. A late day gain helped the Nasdaq eke out a small gain for its 10th straight advance, the longest in 12 years. With Apple, the maker of the iPhone, posting a stronger than expected profit after the closing bell and its stock rising 3.4% in late trade, today could be another banner day for the Nasdaq but it will face some headwinds.
The Dow Jones industrial average gained 0.77%, the Standard & Poor’s 500 Index gained 0.36% and the Nasdaq Composite Index gained 0.36%. The S&P 500 is now up 41% from the 12-year closing low of March 9th.
Troubled lender CIT Group warned it could still file for bankruptcy if debt swap failed, one day after securing $3 billion in emergency financing from its bondholders. Its stock sank 21.6% to end at 98 cents on the New York Stock Exchange.
In regulatory news, the U.S. Treasury Department sent to Congress a draft bill that would curb the power of credit ratings agencies.
Federal Reserve Chairman Ben Bernanke said the outlook for the long suffering U.S. economy was improving, but supportive policies would be needed for some time to prevent rising unemployment from undercutting recovery. Delivering the Fed’s semi-annual report on the economy to Congress, Bernanke also sought to dispel concerns the U.S. central bank’s aggressive monetary easing could end up fueling inflation, saying he was confident the Fed could pull back its extraordinary stimulus when the time was right.
“Better conditions in financial markets have been accompanied by some improvement in economic prospects,” Bernanke told the House of Representatives Financial Services Committee. “Despite these positive signs, the rate of job loss remains high.” While housing and household spending appear to be stabilizing, unemployment is likely to remain uncomfortably high into 2011 and could sap fragile consumer confidence, he warned. “The (Fed) believes that a highly accommodative stance of monetary policy will be appropriate for an extended period,” Bernanke said.
This morning European shares are trading marginally lower, U.S. futures are down and commodity prices are lower.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
