Canada’s main stock index rose more than 1.0% on Friday, rallying for a 4th consecutive day as stunning jobs data lifted investor confidence in Canada, while firm resource prices helped materials lead the gains. Materials were up 2.3%, rebounding from Thursday’s selloff, as the price of gold moved back above $1,200 an ounce. As well, copper prices advanced to their highest in nearly 2 weeks on improving global demand. Heavyweight financials were also among the solid gainers, rising 1.37%. The most influential advancer on Friday was Research In Motion (RIM), rising 7%, after the BlackBerry smart phone maker said it is preparing to launch an applications store and consumer Internet services in China as part of its push into the world’s top mobile market.
The Toronto Stock Exchange’s S&P/TSX composite index climbed 137.08 points, or 1.2%, to end at 11,570.45. For the week, the TSX is up more than 3%, making a strong comeback after hitting its lowest close in 8 months on Monday. Confidence in the domestic economy underscored the positive prospects for growth and outweighed any negative implications of higher borrowing costs that will result with stronger job growth. Data released early on Friday showed Canada’s economy created 93,200 jobs in June, a near record gain and 6 times more jobs than forecast.
In the United States Wall Street closed out its best week in a year on Friday, snapping back from a long stretch of selling, as investors looked ahead to what many expect will be a solid earnings season.
Stocks ended near the day’s highs, but trading was thin. Just 6.197 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, making it the lowest-volume day of the year. The major stock indexes advanced 5% in the holiday-shortened week, as investors put a string of dismal data behind them to focus on what is expected to be another solid quarter for corporate results and focused on some bargain hunting.
Investors expect to see good margins, very healthy balance sheets as companies basically state that even with the slowdown they can still earn money. Previous data has revealed that companies are not building inventory and not adding workers. In other words, they are very well positioned for the worst case economic scenario.
The Dow Jones industrial average was up 0.58%, the Standard & Poor’s 500 Index was up 0.72% and the Nasdaq Composite was up 0.97%. The S&P 500 rose for a 4th straight day, up 5.4% for the week, its best week since mid-July 2009. But the index is still down about 11.7% from its most recent closing high in late April. The Dow rose 5.3% and the Nasdaq advanced 5% on the week.
The earnings season unofficially begins with Alcoa Inc. after the closing bell today. Analysts are expecting overall 2nd quarter earnings to grow by 27%, according to Thomson Reuters data. This is up from the 22.4 % that analysts were anticipating at the beginning of the year. Alcoa, the 1st Dow component to report, is expected to swing to a 2nd quarter profit, though falling aluminum prices have prompted analysts to cut their estimates on the stock.
In economic news, U.S. wholesale sales fell unexpectedly in May, lifting inventories to their highest level in 11 months, a government report showed. Analysts said a slackening in demand could lead businesses to try to curb the inventory buildup, weighing on economic growth. Recent U.S. data showing slowing growth in the services and manufacturing sector, weakness in housing and a stagnating jobs market also worried investors, although most say it is too early to call a double-dip recession.
Canada’s biggest companies are expected to deliver only modest earnings growth for the 2nd quarter, and that’s probably not enough to lift the spirits of investors as they obsess about an uncertain global economy. Most Canadian companies will report their quarterly results during the next 2 or 3 weeks. The timing is less than ideal, with the market focused on Europe’s debt crisis, slowing Chinese growth and the threat of a double-dip recession. Given those concerns, it will take a combination of robust results and a healthier global outlook to repair fractured sentiment, analysts said.
Companies in the Toronto Stock Exchange’s blue-chip S&P/TSX 60 index are expected to average 2% gains in 2nd quarter earnings per share compared with last year, according to Thomson Reuters StarMine SmartEstimates. The index is trading at about 10 times the next 12-month forward earnings which is on the cheaper side of the historical norm. The index dropped just under 10% from its high of the year in April to its low point in early July.
In the short-term stock markets will likely take a wait and see approach as earnings season kicks into high gear and investors take a pause from the sharp gains posted last week.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
