Stock Market

A Day For Overcoming Blips On Canada’s Stock Market; Desjardins On Weight of Energy Sector In the Index

It was a day for overcoming blips on Canada’s main stock market. The Toronto Stock Exchange got back to winning ways on Tuesday in closing up 73 points, but below the 20,000 level as it hit a blip in the afternoon session as the ‘blame game’ around who was responsible for a missile strike in the territory of NATO-member Poland heated up, with both Ukraine and Russia pointing the figure at each other.

The TSX had hit a blip yesterday too in losing about 180 points, having gained more than 750 points over Thursday and Friday of last week.

At the conclusion of Tuesday trade, the TSX was at levels roughly half way between 52 week highs of 22,213 and a 52 week low of 17,873.

In keeping with the mixed tone to markets, commodities were evenly divided too, with oil prices higher and gold lower. Reflecting the higher oil price, the Energy sector rose 1.2% on the day, while the Info Tech sector (up 2.5%) and Financials (up near 0.2%) were other influential sectors.

Desjardins in an ‘Economic Studies’ note published Tuesday said even with the current low valuation levels of most stock market indexes, many downside risks remain. First, it noted, a backdrop of high interest rates justifies lower valuations of listed securities. It said: “Corporate profitability requirements increase as money market and bond yields become more attractive. As such, we shouldn’t expect a substantial equity market rebound until earnings rise materially too. We believe that the opposite will happen. The economic slowdown combined with moderating inflation is likely to lead to a fall in earnings.”

The Canadian S&P/TSX index, Desjardins noted, rebounded in October, rising 5.3%, as Canadian stocks benefited from the movement toward value securities. The energy sector also contributed to the rise as oil prices remained high. Desjardins noted the S&P/TSX’s composition and earnings have shifted significantly in the last year. Between October 2021 and October 2022, the weight of the energy sector in the index increased from 14% to 19%, while its share of earnings rose from 15% to 26%. “Oil companies’ large surpluses are underpinning the index’s value, but are also increasing its volatility as these prices are fluctuating. The outlook is much less positive for the other sectors of the Canadian economy,” Desjardins added.

Among commodities today, West Texas Intermediate (WTI) settled higher on Tuesday, surging up from early losses on a lowered demand forecast and worries about Chinese demand after AP News reported a Russian missile fired as part of an attack on Ukraine energy systems landed in NATO member Poland, killing two.

WTI crude for December delivery closed up $1.05 to US$86.92 per barrel, rising off an intraday low of US$84.06. January Brent crude, the global benchmark, was last seen up $1.28 to US$94.42, while Western Canada Select was up $2.84 to US$59.37 per barrel. Citing information from an unnamed US intelligence official, and Polish media. the AP report said Poland’s leaders are in an emergency meeting referred to as a “crisis situation”. The report said Polish media reported two died in the attack near the village of Przewodow, close to the country’s border with Ukraine.

But gold closed with the smallest of losses on Tuesday as a sell-off in the dollar after the US producer price index rose less than expected last month reversed, sending the currency higher. Gold for December delivery closed down $0.10 to US$1,776.80 per ounce.

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