The Canadian stock market snapped a 4-day losing streak to surge more than 250 points as the U.S. economy finally started growing again during the 3rd quarter. The S&P/TSX composite index jumped 269.89 points to 11,075.22 after the U.S. Commerce Department reported that U.S. Gross Domestic Product (GDP) rose at a 3.5% annualized pace, slightly better than the 3.3% growth that economists had expected. It was the 1st time the U.S. economy has grown since early 2008.
Growth was fuelled by government supported spending on cars and homes, raising some questions in the market about the sustainability of the GDP increase. The 4-day losing streak cut 6% from the TSX after a disappointing report on sales of new U.S. homes & consumer confidence raised worries about the pace of a recovery.
The Canadian dollar was up 1 cent to 93.72 cents U.S. Commodity prices turned higher as a result of the GDP announcement, which raised hopes that an expanding U.S. economy will translate into increased demand. Oil prices rose $2.41 to US$79.87 a barrel, and the energy sector gained 2.61%. The base metals sector gained 6.99%. The price of gold advanced by $16.60 to US$1,047.10 an ounce, taking the gold sector up 4.17%. As an interesting side note, Barrick Gold posted a quarterly loss of US$5.4 billion or $6.07 a share, including a non-cash accounting charge of $5.7 billion due to the windup of its gold hedging program – they posted a profit after adjusting for the hedging.
In the United States stocks logged their best single day percentage gain in 3 months as investors saw data showing the U.S. economy returned to growth and brightening the outlook for corporate profits. The government’s 1st estimate of U.S. GDP showed the economy expanded at an annual rate of 3.5% in the 3rd quarter, suggesting it was emerging from the worst recession in 70 years.
Gains were widespread, with big manufacturers, technology, financials, energy and the materials sectors all leading gains. Investor sentiment was also boosted by stronger than expected quarterly results from consumer product heavyweights Procter & Gamble and Colgate-Palmolive. In short, optimism about corporate earnings reports is just being confirmed in the GDP report, we are starting to see the economy recover.
The Dow Jones industrial average jumped 199.89 points, or 2.05%, to end at 9,962.58, the Standard & Poor’s 500 Index added 2.25% and the Nasdaq Composite Index jumped 1.84%.
The CBOE Volatility Index, Wall Street’s most closely watched gauge of investor fear, slid 11.3%, its biggest 1-day percentage drop in 8 months.
This morning you will likely see some profit taking heading into the weekend and for investors to pause for a day after yesterday’s big gains.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
