Canada’s main stock index rose on Monday as energy shares rallied, but the market was still trading near its lowest level in four weeks as investors worried about interest rates being kept at elevated levels for longer than previously expected. The Canadian 10-year bond yield climbed above the 4% threshold to its highest in nearly 16 years.
“It feels like summer is over and, very typical for this time of year, the storm clouds are gathering - mainly in the form of higher (bond) yields,” said Elvis Picardo, a portfolio manager at Luft Financial, iA Private Wealth. “Investors have been caught off guard by how resolute the Fed seems to be in terms of keeping rates high to stamp out inflation.”
Last week, the U.S. Federal Reserve projected that monetary policy would be kept significantly tighter through 2024 than previously expected.
“Once investors digest the interest rate news, it is quite likely we might see a decent rally into year end ... There are a lot of stocks that are trading at really attractive valuations on both sides of the border,” Picardo said.
The S&P/TSX composite index ended up 20.64 points, or 0.1%, at 19,800.61, its first gain after five straight days of declines. On Friday, the index posted its lowest closing level since Aug. 24.
Energy rose 1.9% even as oil settled 0.4% lower at $89.68 a barrel, while industrials added 0.4%.
The materials sector, which includes precious and base metals miners and fertilizer companies, was a drag. It fell 0.7% and real estate, which tends to be particularly sensitive to higher interest rates, was down 1.4%.
The Canadian five-year bond yield - closely watched because of its influence on popular terms of fixed mortgage rates - also rose to a 16-year high on Monday, reaching 4.33%.
Wall Street’s main indexes posted modest gains as well, with increases in Amazon.com shares and the energy sector, as U.S. Treasury yields rose further and investors looked to economic data and Federal Reserve policymakers’ remarks later in the week for clarity on the path for interest rates.
The S&P 50 last week had its biggest weekly drop since March as investors grappled with the rise in benchmark Treasury yields to 16-year highs.
There is a “tug of war between investors seemingly getting more concerned about ‘higher for longer’ ... and bulls wondering maybe we have seen the correction and we can start to build from these levels higher,” said Chuck Carlson, chief executive officer at Horizon Investment Services.
The Dow Jones Industrial Average rose 43.04 points, or 0.13%, to 34,006.88; the S&P 500 gained 17.38 points, or 0.40%, at 4,337.44; and the Nasdaq Composite added 59.51 points, or 0.45%, at 13,271.32.
Among S&P 500 sectors, energy led the way, rising 1.3%, while materials gained 0.8%. Defensive sectors lagged, with the consumer staples group dropping 0.4%.
With the end of the third quarter drawing near, investors said market moves may be relatively muted until companies report quarterly results in the coming weeks.
The S&P 500 has slid about 5.5% since late July but remains up about 13% for 2023.
“There is less urgency to aggressively buy pullbacks in a higher-for-longer world and that is what the market is going to have to deal with over the coming months,” said Angelo Kourkafas, senior investment strategist at Edward Jones.
Investors through the week will be monitoring data including on durable goods and the personal consumption expenditures price index for August, and second-quarter Gross Domestic Product, as well as remarks by Fed policymakers, including Chair Jerome Powell.
Chicago Fed President Austan Goolsbee said in an interview with CNBC on Monday that inflation staying above the Fed’s 2% target remains a greater risk than tight central bank policy slowing the economy more than needed.
In company news, Amazon.com shares rose 1.7% after the e-commerce giant said it will invest up to US$4 billion in startup Anthropic to compete with growing cloud rivals in artificial intelligence.
Declining issues outnumbered advancers by a 1.2-to-1 ratio on the NYSE. There were 52 new highs and 341 new lows on the NYSE. On the Nasdaq, declining issues outnumbered advancers by a 1.1-to-1 ratio. The Nasdaq recorded 45 new highs and 426 new lows. About 9.1 billion shares changed hands in U.S. exchanges, compared with the 10 billion daily average over the last 20 sessions.
Reuters, Globe staff