Canada’s main stock market advanced yesterday as energy & materials shares rose on the back of stronger commodity prices. Commodity prices got support from hopes for strong Chinese demand, and that also lifted global equities. Oil rallied above $78 a barrel, snapping a 5-day losing streak. The S&P/TSX composite index closed up 0.56% although volume was light as the U.S. stock market was closed for the Martin Luther King Jr. holiday.
Financial shares were also on the rise, after coming under pressure in early 2010 while 6 of the index’s 10 main sectors were higher. Direction in the stock market this week will likely come from more company earnings announcements from the United States. Investors will also look through the Bank of Canada’s interest rate announcement today and Monetary Policy Report on Thursday for hints on when the Canadian Central Bank intends to raise rates for the 1st time since the recession hit. Bank of Canada governor Mark Carney has repeatedly given a conditional pledge to keep the central bank’s benchmark interest rate at its current historic low of 0.25 per cent until the middle of the year. The strong Canadian dollar will likely get some ‘air time’.
Market players will also monitor a raft of Chinese data this week for clues on whether Chinese domestic consumption is helping to offset persistent weakness in U.S. demand. Concerns remain that China’s central bank could act again to cool inflation pressures in the economy. Last week, China’s central bank was tightening monetary policy at a faster than expected pace.
Profits from top U.S. technology companies like IBM and financial companies like Goldman Sachs Group this week could help stocks gain as long as investors see room for more profit growth. Stronger-than-expected results last week from tech bellwether Intel failed to excite investors, while steep loan losses reported by JPMorgan Chase & Co. dragged down the market.
In short, companies need to grow earnings in order to catch up to their valuations, companies are spending money and in turn we should see some earnings growth. Quarterly results are expected to show a sharp improvement compared with 2008’s 4th quarter, when the economic downturn took a heavy toll on corporate profits. S&P 500 earnings for the quarter are forecast up 186% versus a year ago, according to Thomson Reuters estimates. It would be the 1st quarter that S&P 500 company earnings grew year over year since the 2nd quarter of 2007. More than 70% of companies beat estimates in the 3rd quarter and investors are eager to see if the 4th quarter will produce similar results. The last quarter of 2008 was the worst earnings period in the history of the index.
U.S. markets were closed on Monday for Martin Luther King Jr. Day, but beginning today the earnings season accelerates, as some 65 of the 500 companies (about 1/5th of the total market capitalization) in the S&P 500 are set to report this week starting with International Business Machines Corp. Economic data on tap this week that could influence stocks include reports on housing starts, producer prices and leading indicators.
This morning world stocks are down as Japan Airlines filed for bankruptcy protection and investors await 4th quarter U.S. corporate earnings with a degree of unease following a fairly mixed start to the results season. Wall Street futures went down 0.20% and most global markets are giving up yesterday’s gains. On the earnings front, we have seen upside surprises from Intel Corp. offset by disappointments elsewhere, most notably Alcoa. As mentioned, Citigroup will be a focus today followed by others including Goldman Sachs Group, Bank of America and Morgan Stanley. U.S. stocks fell 1% on Friday as JP Morgan Chase & Co. offered a cautious earnings outlook even though it reported a strong earnings. In short, investors will be paying particular attention to loan loss provisions and any comments on possible further write downs. Investors do not want to hear about further write downs.
Things are clearly getting better however there is still a long journey ahead but with time and effort things will gradually improve and things will grow.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
