A TSX tote board is pictured in Toronto.Frank Gunn/The Canadian Press
Canadian stocks rose a second day, with the S&P/TSX Composite Index entering a bull market, as a rally by gold producers offset declines in the nation's largest lenders after the U.S. added fewer jobs than forecast, pushing back expectations for a Federal Reserve rate hike.
The S&P/TSX Composite Index rose 0.64 per cent, or 89.79 points to 14,226.78 in Toronto, after fluctuating in the morning. The index is up over 20 per cent from its Jan. 20 low, which meets the definition of a bull market. The index also secured its fourth weekly rally, the longest stretch since November 2014.
The rally has maintained Canadian shares' more expensive valuation relative to their U.S. peers. The S&P/TSX now trades at 21.6 times earnings, about 11 per cent higher than the 19.4 times valuation of the S&P 500 Index.
The S&P 500 lost 0.3 per cent as employers added 38,000 workers in May, the fewest number in almost six years, data Friday showed. Economists surveyed by Bloomberg had forecast a 160,000 gain. The jobless rate dropped to 4.7 per cent as Americans left the labor force.
The disappointing jobs figures raise concerns about the growth trajectory of the U.S. economy, potentially pushing a possible interest rate increase from the Fed beyond the summer. Traders are pricing in a 29-per-cent chance for an increase in July, down from better than 50-per-cent odds Thursday, according to data compiled by Bloomberg.
In Canada, raw-materials producers surged 6.5 per cent. The nation's largest lenders lost 0.3 per cent to offset gains. Manulife Financial Corp., the nation's largest insurer, dropped 2 per cent.
Commodities prices stood on the brink of a bull market. The Bloomberg Commodity Index, which tracks returns from 22 raw materials from oil to soybeans, was up 0.5 per cent to 87.15 in New York in the late afternoon. A close above 87.45 would mark a 20-per-cent advance and meet the common definition of a bull market.
Barrick Gold Corp. and Kinross Gold Corp. jumped at least 11.6 per cent as gold futures surged after the U.S. jobs data. Weakness in the dollar makes gold more attractive as a store of value. A gauge of gold producers soared 7.6 percent, poised for the biggest jump since October.
The rally in Canadian equities, fuelled by a rebound in commodities prices and financials, sputtered earlier this week amid renewed concerns weak global growth will constrain demand for basic materials amid disappointing manufacturing data from Japan to Europe, while the prospect of higher U.S. interest rates has sent the dollar higher.
Valeant Pharmaceuticals International Inc. lost 2.9 per cent for a second straight decline after the drugmaker received a notice of default from some bondholders due to the delay in filing its quarterly financial results with regulators. Valeant reiterated it expects to file on or before June 10.
Hopes that U.S. financial stocks will break out of the their two-year funk took a hit while the rest of the market erased most an early loss after weakening employment spurred speculation the Federal Reserve will have to stand pat on interest rates.
A 1.2-per-cent sell-off in financial shares in the S&P 500 Index caught off guard investors who anticipated that tighter monetary policy as soon as this summer would bolster the outlook for earnings at banks and insurers. Short interest on the most-traded financial exchange-traded fund slid to 1 per cent of shares outstanding, down from a high of 7 per cent in January, data compiled by Markit and Bloomberg show.
The prospect for lower rates for longer sent Treasury yields plunging and weakened the dollar by the most in four months. The currency's drop helped offset the damage in financials by boosting commodities and raw-materials shares, along with multinational consumer staples companies on speculation a weaker dollar will lift overseas profits.
Utility shares rose to an all-time high and phone stocks also advanced to help pare Friday's losses, as investors turned to equities that have high rates of dividend payouts relative to their share prices.
"Even though on the surface a very disappointing jobs report, there are some beneficiaries from that," said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. "Anyone who benefits from a much lower dollar is having decent day today, certainly mitigating what you would think would be a much worse performance for the market."
Lower interest rates and bond yields curb lenders' earnings power and erode profits at insurers that make money by investing premiums in fixed-income products. The renewed threat to interest income comes as banks grapple with dwindling profits from trading services that's sparked job cuts across the industry.
"People were betting strongly that there would be two or more rate hikes in 2016 and this morning has dampened those hopes," said Jesse Lubarsky, a financial-stocks trader at Raymond James & Associates Inc. in New York. "The banks need the economy to be improving to achieve the loan growth needed and this may signal that not all is well. These stocks never like additional uncertainty around the Fed -- that is what has happened."
The Dow Jones industrial average was down 31.91 points, or 0.18 per cent, to 17,806.65 and the S&P 500 lost 6.15 points, or 0.29 per cent, to 2,099.11. The Nasdaq Composite dropped 28.85 points, or 0.58 per cent, to 4,942.52, to snap a seven-day rally, the longest in 15 months.
Crude dropped after OPEC decided to stick to its policy of unfettered output.
Futures fell on both sides of the Atlantic after closing on Thursday above $50 a barrel in London for the first time in seven months. While members of the Organization of Petroleum Exporting Countries rejected a proposal to adopt a new production ceiling, ministers were united in their optimistic outlook for markets. Prices extended losses after the number of rigs drilling for oil in the U.S. rose for the second time this year, according to Baker Hughes Inc.
Oil has surged about 85 per cent in New York from a 12-year low earlier this year amid disruptions in Nigeria, Libya, Venezuela and Canada and declines in U.S. output. OPEC needs more time to come up with a new production ceiling, outgoing Secretary-General Abdalla El-Badri said after the meeting in Vienna, adding that it's hard to find a target when Iranian supply is rising and significant Libyan volumes are halted.
"The good news yesterday was that OPEC is getting along better," said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $14.1- billion. "The pain inflicted on U.S. producers, which was their goal, also hurt OPEC members. A reconciliation process is taking place."
West Texas Intermediate oil for July delivery fell 55 cents to settle at $48.62 a barrel on the New York Mercantile Exchange. Prices slipped 1.4 per cent this week after rising the prior three. Total volume traded was 33 percent below the 100-day average at 2:40 p.m.
Brent for August settlement slipped 40 cents, or 0.8 perc ent, to $49.64 a barrel on the ICE Futures Europe exchange. Prices closed Thursday above $50 for the first time since Nov. 3. The global benchmark crude closed at a 53-cent premium to WTI for August delivery.