Stock market rally loses steam as hopes fade for stimulus deal before U.S. election

TORONTO — A rally of North American stock markets dissipated near closing on fading hopes of a stimulus deal in time for next month's U.S. election.

Markets were down in early trading after Monday's decreases until they got a boost when House Speaker Nancy Pelosi professed optimism about a possible deal before her self-imposed Tuesday deadline.

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"Sentiment so far this week has largely been driven by the ebbs and flows of the fiscal negotiations in the U.S. with the latest push to get a stimulus package over the finish line boosting risk appetite today," said Candice Bangsund, portfolio manager for Fiera Capital.

The Democrats and the White House have reportedly narrowed their differences but the size and composition of the potential spending remains unknown.

Investors are hopeful that some sort of stimulus can be approved soon with a temporary selloff likely if no deal is reached, she said in an interview.

Nonetheless, expectations are high that some sort of stimulus will ultimately be approved regardless of who wins next month's U.S. election.

Bangsund said stimulus isn't essential for the U.S. economy, but it would accelerate the recovery in the world's largest economy and beyond.

"If we continue along at this pace, it's going to be a more subdued, moderate recovery and growth," she said.

"But should we get a fiscal stimulus package early on the 2021. This would inevitably expedite the economic recovery in the U.S. and this would have positive implications globally as well."

The S&P/TSX composite index closed down less than one point to 16,273.26 after losing some ground in late afternoon trading.

Likewise south of the border, markets pulled back on fading optimism about an agreement.

In New York, the Dow Jones industrial average was up 113.37 points at 28,308.79 after reaching a high of 28,575.03. The S&P 500 index was up 16.20 points at 3,443.12, while the Nasdaq composite was up 37.51 points at 11,516.49.

U.S. markets outperformed Canada's largest stock index because the fiscal stimulus would be most beneficial to the U.S. economy and corporations, said Bangsund.

Also supporting Tuesday's U.S. market increases were encouraging, early third-quarter corporate results and drug maker Moderna indicating that its coronavirus vaccine could be available for emergency use in December if it gets positive results from its interim trial. That follows a similar signal on Friday from Pfizer that its vaccine could be ready next month.

"All of these vaccine headlines — particularly should they be on the positive side like today's was — should be a good support for equity markets given that again, this would solidify the economic recovery process in 2021 similar to the fiscal stimulus," she said.

Energy led sectors on the TSX, gaining 1.4 per cent on rising oil prices that pushed shares of Seven Generations Energy Ltd. up 6.4 per cent.

The December crude contract was up 64 cents at US$41.70 per barrel and the November natural gas contract was up 11.8 cents at US$2.91 per mmBTU.

The Canadian dollar traded for 76.12 cents US compared with 75.96 cents US on Monday.

Consumer discretionary, materials and real estate also moved higher.

Materials climbed 0.74 per cent on higher metal prices as First Quantum Minerals Ltd. rose 7.9 per cent.

The December gold contract was up US$3.70 at US$1,915040 an ounce and the December copper contract was up 6.2 cents at nearly US$3.15 a pound.

Health care led on the downside, losing 2.7 per cent.

This report by The Canadian Press was first published Oct. 20, 2020.

Companies in this story: (TSX:VII, TSX:FM, TSX:GSPTSE, TSX:CADUSD=X)

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