S&P/TSX composite gains 150 points led by energy stocks, U.S. stock markets also rise

TORONTO — Canada's main stock index gained almost 150 points, led by strength in the energy sector, while U.S. stock markets also rose.

The S&P/TSX composite index was up 149.78 points at 20,376.57.

Markets in Canada breathed a “sigh of relief” Tuesday after the latest inflation report, said Craig Fehr, investment strategist at Edward Jones. 

Inflation in June slowed to 2.8 per cent, down from 3.4 per cent in May, said Statistics Canada. 

“It’s generally consistent with what we saw last week in the U.S., and I would say broadly consistent with the trends that we’ve been seeing in consumer prices for some time now,” said Fehr. 

However, the fall in headline inflation was helped by the fact that energy costs are a lot lower than they were a year ago and core inflation measures aren’t quite as rosy as the headline suggests, said Fehr.

“Core inflation is still sufficiently elevated to keep the Bank of Canada on guard,” he said, but it isn’t so high as to warrant a “new, more aggressive stance” from the central bank either. 

“I suspect it probably supports the case for the Bank of Canada to keep its policy rate steady for a while until it gets confirmation that core inflation continues to move lower,” said Fehr. 

In New York, the Dow Jones industrial average was up 366.58 points at 34,951.93.The S&P 500 index was up 32.19 points at 4,554.98, while the Nasdaq composite was up 108.69 points at 14,353.64.

The market gains on both sides of the border Tuesday reflect confidence as inflation continues to move lower, said Fehr, adding that new economic data in the U.S. helped support the narrative that the economy is remaining resilient even as inflation moderates. 

The so-called "Goldilocks scenario," where inflation is successfully quelled without a dramatic economic deceleration, isn’t a done deal yet, said Fehr, but the prospects of a soft landing have definitely grown.

He’s expecting more recessionary conditions in the back half of the year, but not necessarily a “traditional recession.” 

“In fact, we could probably see some sort of a rolling one where parts of the economy are already in contractionary territory … that they'll actually start to recover at the same time that consumer spending starts to moderate.” 

With a little more confidence in hand, investors can now shift some attention toward second-quarter earnings, said Fehr. 

“I think the markets are really starting to hone in on what the trends are within corporate America, corporate Canada to see if the earnings story can continue to hold up as the economy has,” he said. 

The price of oil on Tuesday regained its losses from the day before after a release Monday showcased economic weakness in China. 

The Canadian dollar traded for 75.82 cents UScompared with 75.83 cents US on Monday.

The September crude oil contract was up US$1.58 at US$75.66 per barrel and the August natural gas contract was up 12 cents at US$2.63 per mmBTU.

The August gold contract was up US$24.40 at US$1,980.80 an ounce and the September copper contract was down a penny at US$3.83 a pound.

This report by The Canadian Press was first published July 18, 2023.

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

Rosa Saba, The Canadian Press