Canada’s main stock index advanced for a 3rd straight day yesterday, helped by hopes of economic recovery that lifted the financial sector. Similar to Friday’s session, financials were almost single handedly responsible for the stock market advance with a healthy 2.23% gain as 6 of the 10 main sectors fell for the day. Steady optimism triggered last week by the Bank of Canada’s declaration that the recession was over has buoyed the financial sector, which has risen nearly 7% since the rosier outlook was announced. Insurers were among the biggest winners for the day. Canada’s life insurers now look to be better investments than either their U.S. rivals or the big Canadian banks as a surging stock market brings profits higher after 3 dismal quarters.
The S&P/TSX composite index closed up 0.65%, at 10,757.43. The materials sector ended lower, down 0.13%, unable to hold onto early gains after the price of gold hit a 6-1/2 week high. Meanwhile, the heavyweight energy sector eked out a 0.17% gain as prices rose amid strong U.S. homes sales data that raised optimism about a turnaround in the economy.
In short, stock market sentiment has really changed since early July as the index has risen 9 out of the last 11 days for a gain of 8.6%.
In the United States stocks rose slightly in a late rally as investors rotated their investments into financials, which had lagged in the recent 2 week stock market run-up. Upbeat data on new home sales underpinned financial stocks, the day’s strongest sector, and prompted investors to buy up the shares of several regional banks, which had been among the worst hit by credit losses tied to a weak housing market. The Dow Jones U.S. home construction index jumped 4.3% after data showed U.S. new home sales posted their biggest monthly gain in 8 years in June, suggesting the housing market may be starting to recover from its worst slump since the Great Depression of the 1930s. Sales of new single family homes in the United States rose more than expected in June, while the inventory of homes for sale fell to a more than 11 year low, government data showed. Sales rose to an annual rate of 384,000 in June, the Commerce Department reported, up 11% from May, while the number of new homes still for sale fell to 281,000, the lowest since February 1998. The data will help reinforce the developing mindset that the housing market has bottomed and that the economy has stabilized and will grow in the 3rd quarter. Despite the encouraging data, the median sale price for a new home fell to $206,200, down 5.8% from the previous month, and down 12% from a year ago (home affordability is very high – assuming you have a job).
Stronger than expected earnings, in combination with upbeat economic data, have lifted indexes recently, giving stocks their best 2 week advance since just after the S&P 500 hit a 12-year closing low on March 9th. The 3 major indexes rose about 11% each over the past 2 weeks. The Dow Jones industrial average rose 0.17%, the Standard & Poor’s 500 Index rose 0.30% and the Nasdaq Composite Index rose 0.10%.
Given the recent advance and all the latest news, investors could be a little less willing to push stocks higher in the short-term.
This morning things are looking relatively flat but optimism is the stock markets best friend and in general investors are more willing to embrace risk and invest in equities.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
