Investors again shrug off risks to drive stock markets to three-month highs

TORONTO — North American stock markets set new three-month highs as investors again shrugged off risks as they gained more confidence about the economic recovery.

"Markets have been unstoppable even in the wake of renewed U.S.-China frictions, civil unrest out of the U.S. and the risk of a second wave of infections as the economy reopens," said Candice Bangsund, portfolio manager for Fiera Capital.

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The resilience is built on hopes for a rapid economic recovery while supported by a flood of monetary and fiscal support, she said.

Global equity markets rose for an eighth straight day.

"You could say that investors are erring on the side of complacency," she said.

The rally was spurred on Wednesday by supportive economic data in China, Europe and the U.S.

Overseas survey data revealed that these economies are slowly emerging from the COVID downturn and are on the path to recovery, she said.

In the U.S., ADP reported that private payrolls fell by another 2.76 million in May but that was far less than the 8.75 million estimated by analysts. In addition, data from the Institute for Supply Management indicated that the services sector contracted less than expected by rebounding from an 11-year low.

"So I guess it's a case of data that's coming in less pessimistic than forecasts were calling for," Bangsund said.

The S&P/TSX composite index closed up 180.75 points at 15,575.11 after hitting an intraday high of 15,605.33. The market is about 13 per cent below its February high.

In New York, the Dow Jones industrial average was up 527.24 points at 26,269.89. The S&P 500 index was up 42.05 points at 3,122,87, while the Nasdaq composite was up 74.54 points at 9,682.91. Nasdaq is less than 1.6 per cent off its high.

The Canadian dollar traded for 74.05 cents US compared with 73.99 cents US on Tuesday.

The loonie rose after the Bank of Canada left its trend-setting interest rate unchanged at 0.25 per cent.

The currency was supported by a rise in the price of crude oil and a less pessimistic growth outlook for the second quarter from the central bank.

"They expect a less severe contraction and also said that the worst of the impacts in the (COVID-19) crisis may be behind us," she said.

Ten of the 11 major sectors on the TSX were higher, led by real estate and the heavyweight financials.

Real estate increased nearly 4.1 per cent. Financials rose 3.4 per cent with Equitable Group Inc. and Home Capital Group Inc. up 9.4 and 8.5 per cent respectively.

A more than 10 per cent surge by Air Canada shares helped industrials while higher oil prices helped energy with Frontera Energy Corp. up 12.6 per cent.

The July crude contract was up 48 cents at US$37.29 per barrel and the July natural gas contract was up 4.4 cents at US$1.82 per mmBTU.

Oil got off to a soft start on concerns about prospects for a production cut agreement between OPEC and Russia, but rallied on the weekly U.S. inventory report that showed lower stockpiles.

Consumer discretionary rose on the back of a 17.5 per cent gain by Canada Goose Holdings Inc.

Materials was the lone losing sector. It fell 2.7 per cent on lower gold prices that pushed Centerra Gold Inc. down 7.7 per cent.

The August gold contract was down US$29.20 at US$1,704.80 an ounce and the July copper contract was down 0.35 of a cent at nearly US$2.49 a pound.

The market exuberance has caused U.S. markets to be overvalued and vulnerable to a near-term correction, said Bangsund.

"From a risk-reward perspective, the likelihood of a pullback in the coming months largely outweighs that of 3,300 (points) on the S&P. But, for now, there there's definitely some powerful upward momentum behind this equity market rally."

This report by The Canadian Press was first published June 3, 2020.

Companies in this story: (TSX:CG, TSX:AC, TSX:EQB, TSX:HCG, TSX:FEC, TSX:GOOS, TSX:GSPTSE, TSX:CADUSD=X)

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