Canada’s main stock market ended up more than 1% yesterday as higher commodity prices and corporate takeovers out of the United States helped fuel a strong rally across all its sectors. The heavily weighted banking sector led the equity rally. The financials sector which accounts for about a 1/3rd of the TSX, rose 1.97% as the sector’s banks & insurers attracted investors after falling on Friday. The S&P/TSX composite index gained 1.13% on the day. The energy sector rallied 1.2% alongside a rise in oil prices of more than 1% on news that Iran was test-firing missiles as tensions over Tehran’s nuclear program have supported oil prices. The country is the 2nd largest oil producer in the Middle East. Bombardier stock also rose 6.4% after the company said its Chinese joint venture has a $4 billion contract from the Chinese Ministry of Railways to supply 80 high speed trains.
In the United States stocks rallied, snapping a 3 day losing streak as corporate takeovers in the technology and health care sectors fueled optimism about share values. Mergers and acquisitions are typically viewed as bullish and it suggests companies are more optimistic about the business outlook. A number of deals were announced and investors bet more could follow. Xerox agreed to buy Affiliated Computer Services and Abbott Laboratories said it would pay $6.6 billion for Solvay’s drug unit. It is always a positive sign when you see companies are investing money, whether they buy other companies, invest in new capacity or technology or buy back their own stock versus hording cash (if they are that lucky).
With depressed stock prices, like the stock prices that we have seen for the previous 18 months (less so in Canada) a lot of companies will find it cheaper to buy a company than to grow that same type of company organically (i.e. its cheaper or more financially rewarding to buy than to build).
The Dow Jones industrial average rose 1.28%, the Standard & Poor’s 500 Index rose 1.78% and the Nasdaq Composite Index rose 1.90%. With yesterday’s gains the Dow Jones industrial average held an advance of about 16% in the quarter, which would make it the index’s best quarter since the 4th quarter of 1998.
The International Monetary Fund (IMF) will increase its forecast for global growth next year in the next few days to account for a faster recovery in major economies. The IMF will raise its forecast for 2010 global growth to about 3% from 2.5%, said Murilo Portugal, the IMF deputy managing director who said that “the recovery is stronger than initially forecast.”
This morning things are looking down a little after yesterdays strong gains and commodity prices are also down.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
