North American stock markets rise on hope U.S. stimulus deal will come together

Financial numbers flow on the digital ticker tape at the TMX Group in Toronto’s financial district on May 9, 2014. THE CANADIAN PRESS/Darren Calabrese

North American markets closed higher Thursday as energy stocks rose and U.S. investors digested more news about a potential stimulus deal.

While several sectors ended up in the green on the Toronto Stock Exchange, the TSX Capped Energy Index notched a 5.21 per cent gain on the day. The November crude contract was up US$1.24 at US$41.19 per barrel and the November natural gas contract was up 2.1 cents at US$2.63 per mmBTU.

Greg Taylor, chief investment officer of Purpose Investments, attributed some of the energy sector’s gains to a Wall Street Journal report that Saudi Arabia may cancel plans for an oil output hike early next year.

“That’d be good for the supply-demand dynamics for the energy stocks, so that could be something that would be getting that sector going,” Taylor said.

Taylor said the market, broadly, was higher amid improved confidence for future economic growth, continuing on Wednesday’s “euphoria” around the renewed possibility of a U.S. stimulus deal.

“The thought being that next year, once the election is behind us, we’re going to get a fairly healthy dose of fiscal stimulus. So if the U.S. throws a few trillion at the economy and is trying to keep it going, and we get further past COVID, the vaccine comes … That sets us up for an environment where global growth can really kick in,” Taylor said.

The S&P/TSX composite index was up 106.24 points at 16,534.54. In addition to the pop in energy stocks, the health care sector was up more than eight per cent amid increases in shares of Aurora Cannabis, Aphria, Bausch Health, Canopy Growth and Cronos Group.

In New York, the Dow Jones industrial average was up 122.05 points at 28,425.51. The S&P 500 index was up 27.38 points at 3,446.83 while the Nasdaq was up 56.38 points at 11,420.98.

The Canadian dollar traded for 75.64 cents US compared with 75.33 cents US on Wednesday.

The December gold contract was up US$4.30 at US$1,895.10 an ounce and the December copper contract was up 0.9 of a cent at $3.04 a pound.

Taylor said recent U.S. presidential and vice-presidential debates may have swayed some investors to believe Democrats will win in the upcoming U.S. election.House Speaker Nancy Pelosi, a Democrat, said on Thursday she would not support President Donald Trump’s suggestion of a standalone stimulus bill supporting just the airline industry, in lieu of a larger economic support.

“The market’s starting to get really comfortable that it’s going to be a Democratic sweep in the U.S. — and with that, we’re going to have the potential for a fairly aggressive fiscal stimulus to come, post-election. That seems to be a little different than what the market was talking about a week ago,” said Taylor.

“I think (it is) generally actually looked at as positive for Canada. From a trade point of view, the Democrats look like they have been more open to Canada. They’d be less likely to be as aggressive on trade fronts as Trump has been in the past.”

Taylor said some sectors could benefit more than others, if markets continue their newfound optimism in the U.S. Democratic party. A stimulus deal, he said, would be good for cyclical sectors, such as industrials, materials, energy and financials.

“There were some concerns from the energy point of view — whether (U.S. Democrats would) be more aggressive on fracking and going more in favor of green energy. But some of those fears seem to be going away, as of late,” said Taylor.

“The other big fear that has been starting to creep in the market is whether they start to regulate big tech … and that’s why when the last little bit, we’ve seen a bit of this rotation away from tech towards some of these other sectors. That’s why the industrials are doing a little better, some of the banks are doing better — and the energy stocks, which really have been forgotten this year, are having a good bounce today.”

But, Taylor cautioned that he is not reading too heavily into Thursday’s upswing, since this week’s whipsawing market has been based on low trading volume.

“The market’s had a good bump in the last few days, but it’s on really thin volume,” Taylor said. “Next week, we really start earnings season in the U.S. I think that’s going to be something that will catch more attention. We all have to remember that the election is not going to go away quietly, and I think there’s still potential for some more volatility. We’ve had a fairly good bounce in the last few days, so I think some people are just stepping back trying to see if it’s real or not.”

Going forward, Taylor said he is also watching interest rates, after Bank of Canada Governor Tiff Macklem gave a speech on Thursday outlining risks to the Canadian economy. Macklem highlighted the impact of low interest rates on the housing market, and the debt loads on companies and consumers.

“Interest rates start to increase a little bit as global growth comes in,” Taylor said.

“There wasn’t really anything really new today — generally the banks and the real estate companies are doing ok. But I think that is a very valid concern he’s raising, though: that if you do get to see that growth pick up next year … we’re going to still be in an era of very low interest rates, but they could be on the path to get tighter.”

Anita Balakrishnan, The Canadian Press

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