Canadian stock markets advanced yesterday as investors continue to hope for a viable economic recovery and a rally in prices for commodities. Stock market support also came from data showing Euro zone economic sentiment increased in July to its highest level in 8 months.
The S&P/TSX Composite index advanced higher from the open and rarely looked back as 10 of the 10 sectors advanced strongly, allowing the overall market to make up nearly all of the last 2 days of declines. The energy and materials sectors, up 2.44% and 3.29%, respectively, as the price of oil and gold rebounded from recent pressure.
The price of crude oil jumped more than 5% toward $67 a barrel, while gold tracked oil’s rise, as U.S. economic data sparked fresh optimism that the recession may be bottoming out. The number of U.S. workers staying on jobless rolls fell to the lowest in 3 months last week, government data showed, while the 4 week moving average for new claims dropped by 8,250, to 559,000, which is the lowest level since January 2009.
The central bank of the world’s #2 oil consumer, China, said it would keep a loose monetary policy to assist in the economic recovery and keep consumption up. Expectations a rebound in the global economy could bolster slumping fuel demand have helped push crude up from below $33 a barrel in December, with many investors looking to stock markets for early signs of a turnaround. The recession has impacted global fuel consumption and sent crude tumbling from record highs near $150 a barrel struck in July 2008, prompting the Organization of the Petroleum Exporting Countries (OPEC) to agree a series of output cuts aimed at lifting prices. Kuwait’s oil minister said oil prices should rise later this year with the onset of winter heating oil demand in the Northern Hemisphere. Energy traders have also been keeping a close eye on plans under consideration by the U.S. Commodities Futures Trading Commission to implement position limits for some commodity futures after wide price swings that have raised concern over speculation. Some critics worry U.S. regulators may impose limits on futures positions, which could push investors away from exchange-based oil trading in contracts such as NYMEX crude.
Economic indicators need to continue to head upward and earnings need to continue to beat estimates in order to continue to push stock prices higher.
In the United States stocks rose as solid corporate profit reports. The market’s rally pushed the benchmark S&P 500 index earlier in the day to its highest intraday level in almost 9 months, challenging the psychologically important 1,000 level. The Nasdaq briefly rose above 2,000 for the first time since October 2008. The stock market’s advance was supported by strong demand for the U.S. Treasury Department’s auction of a record $28 billion of 7 year notes. Strong bids on U.S. debt diminish the chance of a rise in borrowing costs which helps consumer, business and the government.
Companies reporting better-than-expected results included MasterCard and industrial conglomerate Tyco International. In short, we are now in a stock market where the momentum is so strong and strength can lead to additional strength and pull backs tend to be short lived.
The Dow Jones industrial average added 0.92%, the Standard & Poor’s 500 Index added 1.19% and the Nasdaq Composite Index 0.84%. The S&P 500 is up 45.9% from the 12 year closing low on March 9th but it’s still down 37.4% from its record high close in October 2007 (although, it has regained more than 50% of it’s losses). With just one day left in the month, the Dow is on track for its best monthly percentage gain since October 2002, while the S&P 500 and the Nasdaq probably will mark their 5th straight month of gains.
About 75% of the S&P 500 companies that have reported quarterly results have beaten expectations, according to Thomson Reuters data. The theory of bad news getting less bad is continuing to be sustained by the stock market. There is a lot of hope and optimism that is being built into the price of stocks. About 3 quarters of the companies in the S&P 500 that released results since June 17th have exceeded analysts’ profit estimates, according to data compiled by Bloomberg. The data shows they’ve beaten forecasts by an average 9%, even as earnings tumbled 31%.
We should have see strong corporate profits relative to expectations because companies have done well managing costs during this downturn. There is always something to worry about but currently stocks are celebrating. This morning we are seeing stocks trading slightly lower.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
