The S&P/TSX Composite Index rose for the 11th straight session Friday, breaking through 17,000 for the first time amid a remarkable stock market rally this year.
But the latest 1,000-point move for the index took a lot longer than previous steps earlier this year, reflecting various challenges that have popped up over the course of 2019.
The index was below 14,000 just 11 months ago. In short order, it then rallied above 15,000 in January and 16,000 in February. But it has taken 187 trading sessions (including Friday’s) to rise above 17,000, after zigzagging for most of the past nine months.
Blame the slowdown in gains on an uncertain global picture, which has weighed on the world’s stock markets for much of the year. The simmering trade war between China and the United States dampened expectations for the global economy, and clouded the outlook for the commodity producers that still define much of the TSX.
As well, retreating bond yields and a flat or inverted yield curve (where longer-term bonds yields less than short-term bonds) raised concerns about the profitability of Canada’s financial sector, including banks and insurance companies.
Some observers were convinced that the U.S. economy was nearing recession, and the Federal Reserve underscored these concerns by cutting its key interest rate three times in 2019, most recently at the end of October.
But the mood has lifted in recent weeks. The U.S. labour market continues to produce upbeat employment figures and there are now signs that China and the United States may be close to resolving their differences over trade. On Friday, the Dow Jones Industrial Average closed above 28,000 for the first time, ending the day at 28,004.89, up 0.8 per cent. The S&P 500 also reached a record high, at 3,120.46, up 0.8 per cent.
The S&P/TSX Composite Index closed at 17,028.47, up 56.29 points or 0.3 per cent.
Fed chair Jerome Powell told Congress this week that the central bank is comfortable with interest rates at their current level, given this backdrop, and some economists are now revising their outlook.
“We expect economic growth to slow over the coming quarters, but the fading downside risks from the global backdrop and trade policy, together with new, less dovish language from the Fed means we are no longer forecasting a final 25 basis point [or a quarter of a percentage point] rate cut,” Michael Pearce, an economist at Capital Economics said in a note on Friday.
Mark Haefele, chief investment officer at UBS, upgraded his outlook Friday toward international developed and emerging market equities, from an “underweight” to a “neutral” position – reflecting what could be a warmer view of stocks among institutional investors.
“Now, the weight of upside and downside risks is more balanced,” Mr. Haefele said in a note. He pointed out that U.S.-China trade negotiations are making progress and expectations for corporate profits have fallen, which implies that the market has further room to gain if expectations improve.
The 461 companies in the S&P 500 that have reported their financial results so far this earnings season suggest that earnings will fall 0.4 per cent in the third quarter, year over year, according to I/B/E/S estimates from Refinitiv. However, nearly 75 per cent of companies have beaten analysts’ expectations.
Canadian companies are performing worse. According to Refinitiv, third-quarter earnings are on track to fall 2.4 per cent, year-over-year. But the upside here: Ignoring energy companies, profits are up 3.2 per cent – good enough to power stocks to record highs when the outlook is brightening.