Canada’s main stock index soared to a near eight-week high Wednesday as the energy sector surged despite producers posting big losses as they cut oil production amid low crude prices.
The S&P/TSX composite index closed up 429.82 points at 15,228.11 to the highest closing since March 6.
Stock markets also rose in the U.S. even though its economy slipped into recession and the Federal Reserve pointed to a protracted recovery.
In New York, the Dow Jones industrial average was up 532.31 points at 24,633.86. The S&P 500 index was up 76.12 points at 2,939.51, while the Nasdaq composite was up 306.98 points at 8,914.71.
“The risk-on mood has extended itself into a third day this week which has added to the impressive comeback that we’ve seen here in April,” said Candice Bangsund, portfolio manager for Fiera Capital.
She said equity climbed on renewed hopes for a viable treatment to fight the novel coronavirus, which helped offset weaker-than-expected GDP results that showed the economy shrank 4.8 per cent in the first quarter.
Gilead Sciences and the U.S. government reported that remdesivir shortened the time it takes for COVID-19 patients to recover by four days on average if taken early.
That’s a different message than last week when a Financial Times report suggested the drug was not successful.
Bangsund said the effectiveness of the drug is by no means a done deal but the market rallied on hopes it’s proven successful.
“The market is pretty optimistic about the potential recovery and the fact that economies are going to be reopened here in May,” she said in an interview.
However, the Fed dampened hope of a V-shaped or quick recovery by warning that the pandemic will weigh on the economy longer than expected.
Bangsund said the central bank’s outlook is consistent with her view that reopenings are going to be staggered and take longer.
She said the weakest economic growth by the United States since the financial crisis should have been viewed negatively but equity markets have been largely unfazed by grim economic and corporate earnings results.
“Markets are really looking through the current economic destruction and towards an eventual global economic comeback.”
The energy sector led a broad-based rally on the TSX, gaining more than 13 per cent with shares of several producers climbing by double digits. Crescent Point Energy Corp. and Shawcor Ltd. each rose 17.5 per cent while MEG Energy Corp. was up 17.2 per cent.
The increases flowed as the price of crude oil surged on a U.S. report that gasoline demand jumped and fourth straight week of declining production. That helped to alleviate concerns about storage availability amid weak demand.
“It’s added to hope for an eventual rebalancing in the market and a decline in that massive supply glut that’s been weighing on markets for the last few months,” she said.
The June crude contract was up US$2.72 or 22 per cent at US$15.06 per barrel and the June natural gas contract was down 7.9 cents at nearly US$1.87 per mmBTU.
Higher crude prices helped the Canadian dollar, which traded for 71.83 cents US compared with an average of 71.54 cents US on Tuesday.
The heavyweight financials sector rose 4.3 per cent and consumer discretionary was up 3.3 per cent.
Only consumer staples was lower.
Materials rose less than a percentage point as gains by forestry companies like West Fraser Timber Co. Ltd. were partially offset by the impact of lower gold prices.
The June gold contract was down US$8.80 at US$1,713.40 an ounce and the July copper contract was up 2.5 cents at US$2.37 a pound.
Despite improved sentiment, Bangsund fears the market could be getting ahead of itself with valuations back to pre-COVID levels.
“Given that there’s still so much uncertainty out there, we think maybe things have gone a little too far too fast and markets could be vulnerable to a near-term correction.”
Ross Marowits, The Canadian Press