Canadian stocks climb to record highs as Middle East tensions lift oil

Growing tensions between Saudi Arabia and Iran – combined with a Saudi crackdown on corruption – lifted oil prices to a two-year high and briefly pushed stock indices in both Canada and the United States to record highs this week. As U.S. President Donald Trump marked the anniversary of his election win – touring Asia with important stops in Japan and China – bond yields eased and tax reform questions grew, taking more wind out of the so-called “Trump trade.” And in New York, the unexpected early retirement announcement of Federal Reserve Bank of New York President William Dudley added more uncertainty back to the future course of the U.S. Federal Reserve monetary policy – all this just one week after Jerome Powell’s appointment as next Fed Chairman seemed to quiet that source of market anxiety.

Canada’s S&P/TSX Composite stretched to another record high early in the week, boosted by strength in energy stocks as crude prices climbed, as well as by a jump in precious metals prices that buoyed the materials sector. “Bond proxy” groups – real estate, staples – that tend to benefit from falling interest rates, were also generally higher, holding onto their gains even though rates turned higher late in the week. The lesser-weighted health care sector saw the most impressive gain, as Valeant Pharmaceuticals International Inc. surged after better than expected financial results, and an announced deal to sell its female sexual dysfunction drug back to the company’s former owners in exchange for a royalty on sales. The financials sector – the flip side of the “Trump trade”, whose profitability improves with higher rates – was among the decliners, as was the consumer discretionary sector, led by weakness in Magna International Inc. The technology sector fell as shares of Open Text Corp. continued the slide that began after last week’s earnings report, and as Shopify Inc. remained under pressure due to concerns raised by a prominent short seller.

Once again, all major U.S. stock indices touched new highs, but later retreated as tax reform worries grew. Performance in the S&P 500 clearly reflected the easing of global bond yields early in the week, especially after dovish comments from Bank of Japan Governor Haruhiko Kuroda. Sector leadership lay squarely with the bond proxies (real estate, staples) while the financials sector led decliners. Department of Justice concerns with the proposed AT&T/Time Warner merger continued to pressure the telecommunications services sector.

European equity indices mostly lost ground, even as the European Commission (EC) lifted its forecast for euro-area growth. But the EC also warned that the United Kingdom was headed for a prolonged slowdown. U.K. Prime Minister Theresa May is coming under mounting pressure over scandals and cabinet resignations, just as European Union negotiators seem to be losing patience with her government in ongoing Brexit negotiations.

Japan and China ranked among the best performing markets globally this week, despite President Trump’s tough talk on trade with both countries as he toured the region. As the yen fell Monday to a nearly eight month low against the U.S. dollar, the Nikkei index surged to its highest level in more than 25 years.

What’s ahead next week:

Canada

  • Teranet/National Bank home price index (October)
  • Existing home sales (October)
  • Manufacturing sales (September)
  • Consumer price index (October)

U.S.

  • NFIB small business optimism index (October)
  • Producer and consumer price indices (October)
  • Empire manufacturing survey (November)
  • Retail sales (October)
  • Import and export price indices (October)
  • Industrial production and capacity utilization (October)
  • Housing starts and building permits (October)

About David Kindy

David has been a keen and active investor in his overall financial health since high school and a client of Investors Group for the past 10 years. As a result of a down turn in the water treatment industry, David decided to take a new path in his career from being a global project manager and became a licensed financial professional with Investors Group. Investors Group, a top performing financial services company, blending with his high moral value made for an easy career transition. This allows David to help individuals with their own financial health and help protect families from life’s uncertainties. David also donates time and money to many philanthropic activities supporting many non-profit and charitable organizations. As a foster parent for the Lion’s Foundation of Canada Dog Guides, David and his wife have raised 8 dogs for the program. He sits on the Orillia Rowing Club board helping to steer the club to a prosperous future. David has also served on the Recreational Advisor Committee for the City of Orillia for the past 3 years. Recently, David has become involved with COPE Service Dogs, a charity out of Barrie that helps youth at risk with their Canines in the Classroom program which, ultimately leads to trained mobility assistance dogs. Regardless of age or income, David enjoys working with clients to reach their goals for a financial secure future utilizing the 6 pillars of financial planning: Cash Management, Education Planning, Investment Planning, Tax Planning, Retirement Planning and Estate Planning.
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