The S&P 500 ended higher on Monday, snapping a five-day losing streak as investors focused on potential corporate tax hikes and upcoming economic data. The TSX also closed higher, its first gain since prior to the Labour Day holiday, with the energy sector doing most of the heavy lifting.
While the Dow Jones Industrial Average advanced on the day, market leading tech and tech-adjacent shares pulled the Nasdaq Composite Index into the red.
Investors favoured value over growth, with stocks set to benefit most from a resurging economy enjoying the biggest percentage gains.
“There are probably not a lot of positive surprises coming this month,” said Liz Young, head of investment strategy at SoFi in New York. “We’re having another period of volatility where I think that rotation could go back to cyclicals and the reopened trade, as the 10-year bond rate slowly grinds higher through the end of the year.”
Market participants are focused on the likely passage of U.S. President Joe Biden’s US$3.5 trillion budget package, which is expected to include a proposed corporate tax rate hike to 26.5% from 21%.
Goldman Sachs analysts see the corporate tax rate increasing to 25% and the passage of about half of a proposed increase to tax rates on foreign income, which they estimate would reduce S&P 500 earnings by 5% in 2022.
The U.S. Labor Department is due to release its consumer price index data on Tuesday, which could shed further light on the current inflation wave and whether it is as transitory as the Fed insists.
“I don’t see inflation settling back down under 2% where it was pre-pandemic,” Young added. “Even if some of those transitory forces weaken, we will still stay at a higher rate than we were before.”
Other key indicators due this week include retail sales and consumer sentiment, which could illuminate how much the demand boom driven by economic re-engagement has been dampened by the highly contagious COVID-19 Delta variant.
The S&P/TSX Composite Index closed at 20,666.41, up 33.35 points, or 0.16 per cent. Several sectors were lower for the day, including a 1.51% drop for technology. But the energy sector rocketed 4.23%, thanks to rising oil and natural gas prices.
The Canadian index has added 18.5% so far this year, but retreated from record highs last week as concerns about a slowdown in economic recovery and rising COVID-19 cases globally dented investors’ confidence in risky assets.
“This is more evidence that there is strong buying support from investors whenever you see some kind of dip,” said Elvis Picardo, a portfolio manager at Luft Financial, iA Private Wealth.
“We are seeing a bunch of energy stocks on the upside. That’s because crude oil ... is again moving over 70 bucks.”
U.S. crude oil futures settled 1.1% higher at $70.45 a barrel as U.S. output remains slow to return two weeks after Hurricane Ida slammed into the Gulf Coast.
The energy group climbed 4.2%, led by a 14.4% jump in the shares of Crescent Point Energy Corp after the company raised its fourth-quarter dividend. The October natural gas contract was up 29.3 cents at US$5.23 per mmBTU, also lending support to the energy sector.
The heavily weighted financials group was up 0.3%, while the materials group, which includes precious and base metals miners and fertilizer companies, added 0.5%.
Canadian Pacific Railway Ltd ended 0.1% lower after Kansas City Southern said it planned to accept the railroad operator’s $27.2 billion cash-and-stock acquisition offer over a $29.6 billion deal to sell itself to Canadian National Railway Ltd.
The industrials group fell 0.8%, while information technology was down 1.5%.
Unofficially, the Dow Jones Industrial Average rose 265.27 points, or 0.77%, to 34,872.99, the S&P 500 gained 10.49 points, or 0.24%, to 4,469.07 and the Nasdaq Composite dropped 7.89 points, or 0.05%, to 15,107.61.
Reuters, Globe staff
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.