Canada’s main stock index posted its best day in six months despite a pullback of cannabis stocks on the last trading session before Wednesday’s legalization.
The upturn in markets was almost global, where the stock losers of the past few days outperformed led by the technology sector, said Patrick Bernes, a portfolio manager for CIBC Asset Management.
The activity comes as U.S. corporate earnings have started to roll in with Goldman Sachs and Morgan Stanley on Tuesday outperforming some forecasts, suggesting a solid earnings season ahead.
“We’ve seen the selloff, a little bit of a correction and you’ve seen some decent results come in. I don’t think there are any growth or macro concerns that would warrant further downward pressure,” he said of equity markets.
Bernes said bond yields, which drove investor anxiety when they increased to multi-year highs, have retreated in the last few days to provide some support to equity markets.
“I think from here we’re probably past the selloff,” he added.
The S&P/TSX composite index closed up 170.27 points, or 1.1 per cent, at 15,579.74, a high for the day on 280.4 million shares traded.
The market was led by technology stocks that were up about four per cent. Heavily weighted sectors like industrials, energy, financials and materials were also up. Only gold and health care closed down.
Bernes said he doesn’t believe there are any fundamental drivers for Tuesday’s 3.4-per-cent slide in cannabis stocks a day after they enjoyed large gains. The sector has been highly volatile even though the market capitalization of various producers have surged since the Liberals promised to legalize recreational cannabis use three years ago.
Aurora Cannabis Inc. sank 7.2 per cent, while rivals Canopy Growth Corp and Aphria Inc. dropped 6.9 per cent and 6.1 per cent, respectively.
“The prices ran up on hope but now that actual sales are going to happen and it’s going to be legal you’re going to start seeing a differentiation as the winners and losers kind of sort themselves out,” he said. “So it should be interesting. I think investors are positioning for the next stage in the evolution of this market.”
Leading the index were Gibson Energy Inc., up 9.3 per cent, Shopify Inc. up 7.2 per cent, and Constellation Software Inc , higher by 6 per cent.
U.S. stocks surged more than 2 per cent on Tuesday after upbeat earnings reports from major companies including UnitedHealth and Goldman Sachs and solid economic data, as equities rebounded from a recent sharp sell-off.
Wall Street’s three major indexes tallied their biggest one-day percentage gains since March. The small-cap Russell 2000 recorded its biggest single-session gain in nearly two years.
Technology, which sold off heavily in the recent pullback, led the gains as all 11 major sectors were positive.
Investors are expecting another strong quarter of corporate profits, hoping the reports can calm nerves following concerns over global trade tensions and rising bond yields. Third-quarter earnings for S&P 500 companies are expected to have climbed 21.8 per cent, according to I/B/E/S data from Refinitiv.
“The corporate profits have certainly been the biggest prop for this market, and so a lot of weight is going to be given to how those corporate profits come out,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “We are early in the season, but so far so good, especially today.”
The gains marked a partial recovery from Wall Street’s recent steep pullback from record levels. The S&P 500 last week posted its biggest weekly drop since March, and some market-watchers said it was not clear that the recent volatility was over.
“It’s mostly an oversold bounce,” Willie Delwiche, investment strategist at Baird in Milwaukee, said of Tuesday’s gains.
“The degree of the move is a function of the moves we have seen already this month more than anything else.”
The Dow Jones Industrial Average rose 547.87 points, or 2.17 per cent, to 25,798.42, the S&P 500 gained 59.13 points, or 2.15 per cent, to 2,809.92 and the Nasdaq Composite added 214.75 points, or 2.89 per cent, to 7,645.49.
Goldman Sachs and Morgan Stanley reported better-than-expected quarterly profits, helped by strength in stock trading and equity underwriting, wrapping up a strong quarter for the big U.S. banks. Goldman shares rose 3.0 percent, while Morgan Stanley shares gained 5.7 per cent.
Goldman Sachs and Morgan Stanley reported better-than-expected quarterly profits, helped by strength in stock trading and equity underwriting, wrapping up a strong quarter for the big U.S. banks. Goldman shares rose 3.0 percent, while Morgan Stanley shares gained 5.7 percent.
In healthcare, shares of diversified product company Johnson & Johnson rose 1.9 per cent, while insurer UnitedHealth Group gained 4.7 per cent following their respective quarterly reports.
Adobe shares jumped 9.5 per cent following the software company’s analyst meeting, adding to the day’s upbeat sentiment for tech.
Walmart shares rose 2.1 per cent as its chief executive urged investors to revise their view of the company’s business.
After the market closed, shares of Netflix, one of the closely watched group of FANG momentum stocks, jumped following the streaming video company’s report.
On the downside, BlackRock shares dropped 4.4 per cent after the world’s biggest asset manager reported its lowest sales of equity, bond and other long-term investments since the second quarter of 2016.
Shares of industrial distributor W W Grainger tumbled 11.9 per cent after its report.
In economic data, U.S. industrial production increased for a fourth straight month in September, boosted by gains in manufacturing and mining output, while other data showed job openings hit a record high in August.
About 7.5 billion shares changed hands in U.S. exchanges. That was below the 7.9 billion daily average over the last 20 sessions, and well lower than busier trading days last week when the market was sliding.
Oil prices edged up in cautious trade on Tuesday as expectations of higher U.S. shale output and inventories vied with worries that crude supply from the Middle East could be disrupted by looming U.S. sanctions on Iran and growing tensions with top exporter Saudi Arabia.
U.S. Senator Lindsey Graham accused Saudi Crown Prince Mohammed bin Salman of ordering the murder of Saudi journalist Jamal Khashoggi and said the prince was jeopardizing relations with the United States.
U.S. President Donald Trump said the Saudi crown prince intends to expand an investigation into the disappearance of Khashoggi and that the prince did not know what happened in the Turkish consulate where Khashoggi apparently disappeared.
“The focus within the oil trade during the next couple of weeks is likely to be on Iran and Saudi Arabia,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
“We don’t expect the Kingdom to be as accommodative to the White House requests for stronger production,” he said, adding that the Saudis could cut as much as 500,000 barrels per day of production “as a warning shot should the U.S. opt to impose any type of sanction in response to the Khashoggi developments.”
Trump has urged the Organization of the Petroleum Exporting Countries to raise output to help cover a shortfall due to new U.S. sanctions on Iran. The market has been supported by reports that Iranian crude exports may be falling faster than expected ahead the Nov. 4 deadline on sanctions.
Brent crude rose 63 cents, or 0.8 per cent, to settle at $81.41 a barrel, while West Texas Intermediate (WTI) crude ended the session up 14 cents at $71.92 a barrel.
Last week, oil prices slumped as global stock markets fell, but a recovery in financial markets, boosted by earnings growth helped provide support to oil prices on Tuesday, traders said.
Reuters and The Canadian Press