Index Daily Change
S&P/TSX composite index 0.16% Drop
Dow Jones industrial average 0.42% Gain
Standard & Poor’s 500 Index 0.40% Gain
Nasdaq Composite Index 0.40% Gain
Canada’s main stock index edged out a small gain yesterday reaching its highest close in 17 months and finished higher for a 2nd straight day thanks to strength in financials and gold miners. The financial sector rose 0.4%. Canadian banks followed the lead of U.S. banks, which climbed higher as chances of a broad overhaul of U.S. financial regulation dimmed as bipartisan Senate talks collapsed. Gold-mining shares firmed on largely steady gold prices, but gains were kept in check by lingering concerns about possible monetary tightening in China. Investors are concerned that higher Chinese inflation would spawn interest rate hikes. Investors are concerned that would slow Chinese economic activity and demand for resources.
The Toronto Stock Exchange’s S&P/TSX composite index ended at 11,979.70, its highest level since late September 2008. There is a bit of resistance in the market at 12,000 but we should break through shortly.
In the United States the S&P 500 hit a 17-month closing high as rising bank shares led a late rally that lifted stocks, more than offsetting worries China may move to cool its overheating economy. Financial stocks added to recent sharp gains, helped in part by the possibility new banking regulations being studied by Congress could be watered down. The KBW bank index rose 1.7% to a fresh 16-month high.
The number of U.S. workers filing new claims for unemployment benefits fell only slightly last week, indicating a sluggish return to jobs growth unlike Canada that saw some huge gains (Olympics likely helped). The report painted a picture of an economy that was slowly improving, frustrating efforts by President Barack Obama to boost employment. The uncomfortably high levels of claims did not alter expectations that job creation was set to resume in March, boosted by temporary hiring for a U.S. census and a bounce back from snowstorm-hit February.
Lingering unemployment and nagging doubts about the solidity of the economic recovery are expected to keep the Federal Reserve committed to holding borrowing costs very low for a long time at a monetary policy meeting next week. The Fed which is the U.S. central bank is widely expected to hold benchmark U.S. rates near zero and reiterate that conditions warrant keeping them “exceptionally low” for an “extended period.”
In Canada it looks increasingly likely that the Bank of Canada will increase interest rates ahead of the Fed as the Canadian economy improves but the Canadian dollar keeps appreciating which could offset any gains we see in the Canadian economy thereby, reducing the need for the Canadian central bank to increase interest rates.
This morning futures on the S&P 500 added 0.2%, after the benchmark index for U.S. equities yesterday hit a 17-month high, while the MSCI World Index climbed 0.6%. A report from Reuters/University of Michigan, due this morning may show the group’s preliminary consumer sentiment index for March rose to 74 from 73.6 last month. A Commerce Department report also due this morning may show business inventories increased 0.1% in January. Crude oil rose 0.3% to $82.35 a barrel in New York, before a meeting of the Organization of Petroleum Exporting Countries (OPEC) next week.
The outlook for stocks in the medium to long-term look pretty good but sovereign debt and budget deficits will be the “elephant in the room” that will ultimately limit the long-term gains in both capital markets and in the economy relative to past years.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
