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Canadian and U.S. stocks on Wednesday extended their massive bounce from the previous session as Washington reached a deal for a US$2 trillion stimulus package to deal with the economic fallout of the coronavirus pandemic.
The S&P 500 opened higher by 10.44 points, or 0.43%, at 2,457.77. The Dow Jones Industrial Average rose 345.43 points, or 1.67%, at the open to 21,050.34, while the Nasdaq Composite gained 3.50 points, or 0.05%, to 7,421.36 at the opening bell.
The S&P/TSX Composite Index was up 188.71 points, or 1.59%, at 12,771.10.
Today’s rally appears tentative, however. Stock futures in the premarket hours fluctuated in and out of the red. At the very least, markets are in store for a volatile session, where markets could swing widely on sentiment as the day’s batch of coronavirus headlines arrives. Prince Charles, the heir to the British throne, testing positive for coronavirus was a reminder that no one is immune and the case counts remain on a steep trajectory.
Some pullback after Tuesday’s massive rally - it was the biggest gain in the TSX since at least the 1970s and the largest in U.S. stocks since the financial crisis - wouldn’t come as a surprise, as markets generally were already pricing in the passage of the U.S bill.
And while U.S. President Donald Trump is letting his hopes known widely for the economy to get back up by Easter, few on the Street are making that their base-case scenario given the contradiction that has with the advice being given by health-care authorities.
While bargain hunters have made their presence known this week, there are also no shortage of doubters that the market has made its lows for this crisis. Take Jim Cramer on CNBC late Tuesday: “You had stocks that moved so much they basically moved as if the second half of the year is going to be good. I struggle to find out why the second half of the year should be good ... I hate this kind of rally. This was a machine-driven rally, just like the sell-offs ... I want to wait to see.”
David Rosenberg, in his Breakfast with Dave commentary this morning, was also skeptical that any bounceback will stick - even though he believes the huge stimulus measures agreed to in the U.S. might mean far less contraction in the American economy this year than he earlier feared.
“The mother of all short-covering rallies yesterday coupled with some end-of-quarter pension fund rebalancing. There was nothing really fundamental behind yesterday’s incredible rebound. Only 10 other times in recorded history have we ever seen such a dramatic one-day bounce, and that only happened in periods of intense duress. Once just two weeks ago; twice in the Great Recession and seven times during the Great Depression. Sorry to have to be the one to break that to you. Moves like this are symptom of a broken market; a bear market. The shorts covered ahead of the stimulus plan being passed and the market had become oversold on a technical basis by a record amount,” Mr. Rosenberg wrote.
The U.S. stimulus deal, billed as a $2-trillion package, is expected to include $500-billion in direct payments to people and $500-billion in liquidity assistance. The European Union is inching towards a coordinated support package of its own, and on top of those launched by individual capitals.
And in Canada, the federal government reached an agreement in principle with the opposition parties late Tuesday night to approve billions in emergency aid to deal with the economic fallout of the new coronavirus pandemic. The opposition parties had earlier vowed to reject the governing Liberals’ plans to give themselves months of unlimited spending without parliamentary approval. After hours of intense negotiations, the Liberal government agreed to pull contentious measures in the legislation and to submit a new version that could be adopted by Parliament on Wednesday. The latest version includes the $82-billion package of emergency spending measures and tax deferrals that Ottawa announced last week to help businesses and workers struggling through the COVID-19 pandemic.
“The right steps have been taken but the main thing that is driving the market at the moment is sentiment,” said Chris Dyer, Director of Global Equity at fund manager Eaton Vance.
He said it was now vital to see some positive signs on the virus itself and that health systems were not being overwhelmed. “Market direction can change very, very quickly depending on one item of news or one development,” he added.
Equities
Commodities
Oil prices slipped into negative territory on Wednesday as faltering fuel demand from the spread of the coronavirus outweighed a massive pending U.S. economic stimulus package.
In this country, oil sands workers will be declared essential in Alberta as the province prepares a list of who will keep working should it need to ratchet up its response to the COVID-19 pandemic, the Globe and Mail is reporting. Still, energy investors aren’t celebrating today, with Suncor and Canadian Natural Resources both trading near the unchanged mark.
Currencies and bonds
The Canadian dollar, in the words of Scotiabank this morning, “remains a slave to flows and the broader market mood generally.” The loonie is up so far today, reflecting a better bid for most risk currencies, even as crude oil remains soft. At last check, the loonie was at 69.8 cents (U.S.)
The U.S. dollar slipped for a third straight session as the scramble for liquidity was soothed again by the super-sized U.S. stimulus plan.
With traders moving gradually away from safety bolt holes, the Japanese yen eased to 111.34 yen per dollar to leave it just off a one-month low.
Bond markets were also calmer. Benchmark U.S. Treasuries were yielding 0.86% while in Europe Germany’s 10-year yield edged a basis point higher to -0.31%, tailed by other higher-rated government debt.
Canadian bond yields rose across a steeper curve in sympathy with U.S. Treasuries as investors weighed the prospect of financing stimulus measures. The 10-year was up 2.9 basis points at 0.900%.
Corporate news
Airlines, hotels and cruise operators, among the hardest hit U.S. sectors, were some of the biggest gainers in early trading. American Airlines, Carnival Corp MGM Resorts and Norwegian Cruise Line Holdings jumped between 15% and 23%.
Nike Inc rose 9% after the sportswear giant beat quarterly revenue estimates and said sales in China were rebounding, helped by online orders.
Boeing Co continued its rally, jumping nearly 15% as sources said the planemaker planned to restart 737 MAX production by May, ending a months-long halt triggered by a safety ban.
Leon’s Furniture Ltd. is laying off 3,900 employees or about half its total current workforce as it deals with the COVID-19 pandemic. The company says it will temporarily close 72 of its 205 corporate-owned stores across Canada.
Other scheduled earnings today include: Ag Growth International Inc.; AGF Management Ltd.; Currency Exchange International Corp.; Delta 9 Cannabis Inc.; HEXO Corp.; Micron Technology Inc.; PRO REIT; Silvercrest Metals Inc.; Savaria Corp.; Stuart Olson Inc.; Village Farms International Inc.
Also see: Wednesday’s small-cap stocks to watch
Also see: Wednesday’s analyst upgrades and downgrades
Economic news
New orders for long-lasting U.S. manufactured goods unexpectedly rose in February, but are set to decline as strict measures to contain the coronavirus pandemic sap demand and push the economy into recession. Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, accelerated 1.2% last month. Data for January was revised up to show durable goods orders gaining 0.1% instead of slipping 0.2% as previously reported. Economists polled by Reuters had forecast durable goods orders dropping 0.8% in February.
(9 a.m. ET) U.S. FHFA House Price Index for January. Consensus is a rise of 0.4 per cent from December and 5.0 per cent year-over-year.
With files from Reuters
Darcy Keith