Canada's main stock index closed out the first half of the year on a buoyant note, posting triple-digit gains heading into the three-day weekend while U.S. stock markets also moved higher.
The S&P/TSX composite index closed up 242.12 points at 20,155.29 on Friday, ending a week of gains across the board, particularly in the industrials, technology and consumer discretionary sectors.
South of the border, markets also jumped. In New York, the Dow Jones industrial average was up 285.18 points at 34,407.60. The S&P 500 index was up 53.94 points at 4,450.38, while the Nasdaq composite was up 196.59 points at 13,787.92.
It has been a “fantastic” second quarter for U.S. markets, said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc. The S&P 500 index is up almost eight per cent on the quarter, while the Nasdaq composite is up close to 13 per cent.
While the TSX has not done quite as well comparatively due to its high concentration of energy stocks — a sector that has been weighed down by falling crude oil prices in recent months – markets on both sides of the border have outperformed expectations for the first six months of 2023.
“The first half of this year has been a big surprise to a lot of people. There continues to be lots of cash being put to work here, and obviously that’s what we’re seeing here today," Archibald said.
Investors are feeling bullish at the mid-point of the year, Archibald said, because no economic recession has materialized yet.
For much of the past year, interest rate hikes by central banks have spurred fears that the economy could be in for a hard landing. But with the rate of inflation cooling — Canada's consumer price inflation rate was 3.4 per cent in May, the slowest pace of inflation the country has seen in nearly two years — many investors believe the end of the rate-hike cycle is near.
That could mean it may be possible for the global economy to dodge the recession many predicted, Archibald said.
“I’ve certainly been in the risk-on camp," Archibald said. "I personally think the market is going to continue to move higher."
Even crude oil, which has lost about US$10 per barrel in value since April over fears about global economic contraction, got a bump on Friday to close above the US$70 mark.
Archibald said the end-of-week oil price rally likely has more to do with a weaker U.S. dollar than anything else, but added the longer a much-feared recession fails to materialize, the more likely it is that crude prices will rebound.
“If we get more definitive data that the economy is not in recession and we’re going to get a soft landing, then I think we’ll see some very aggressive catch-up trading in energy stocks. I just don’t know when that’s going to happen," he said.
Heading into the second half of the year, corporate second-quarter financial earnings will be the "big wild card" when it comes to stocks, Archibald said.
Once earnings reports start rolling in within the coming weeks, investors will have a better sense of whether their outlook on the economy is correct.
"I don't want to sound overtly bullish, but I think the runway for stocks is pretty good," he said.
“If earnings are going up, then I think there are still good times ahead here.”
The Canadian dollar traded for 75.53 cents US compared with 75.44 cents US on Thursday.
The August crude oil contract was up 78 cents at US$70.64 per barrel and the August natural gas contract was up almost 10 cents at US$2.80 per mmBTU.
The August gold contract was up US$11.50 at US$1,929.40 an ounce and the September copper contract was up six cents at US$3.76 a pound.
This report by The Canadian Press was first published June 30, 2023.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Amanda Stephenson, The Canadian Press
