TSX nears record high, lifted by U.S. blue wave

Canada's main stock index moved to within reach of a record high as cannabis and renewable energy stocks got a lift from Democrats winning control of the U.S. Senate and crude oil closed above US$50 a barrel.

The S&P/TSX composite index ended Wednesday up 145.60 points to 17,828.11, 46 points from last February's peak of 17,970.51. Health care led the nine major sectors that moved higher on the belief that incoming U.S. President Joe Biden would be more open to legalizing cannabis. It surged 5.9 per cent with shares of Cronos Group Inc. up 14.2 per cent, Aphria Inc. up 11.8 per cent, Canopy Growth Corp. up 11.5 per cent.

Utilities climbed 1.1 per cent led by Innergex Renewable Energy Inc., Transalta Renewables Inc. and Boralex Inc. on anticipation that Democratic control would be good for firms that are helpful in fighting climate change.

Energy rose as crude reached its highest since February, pushing Suncor Energy and Ceonovus Energy up 1.8 per cent and 1.2 per cent, respectively. The February crude contract was up 70 cents at US$50.63 per barrel and the February natural gas contract was up 1.4 cents at nearly US$2.72 per mmBTU.

Crude prices were helped by lower U.S. inventory levels last week and Saudi Arabia announcing it would cut production by one million barrels per day.

In New York, the Dow Jones industrial average surged 437.80 points to 30,829.40 after earlier surpassing 31,000. There was anticipation that Democratic control of Congress and the White House will result in more government spending.

The market slipped a little toward closing after the U.S. Capitol was evacuated following protests in Washington, D.C. The city also imposed a 6 p.m. curfew.

The S&P 500 index was up 21.28 points at 3,748.14 after earlier setting another record high.

Conspicuously on the sidelines in the market rally was Keystone XL proponent TC Energy Corp. as investors reacted to two Democratic election wins Tuesday night, which will give U.S. president-elect Joe Biden's party control of both houses of Congress. The twin victories put the Senate Democrats in a tie with Republicans with 50 seats each, but Democrats will now have the edge as vice-president-elect Kamala Harris will have the tie-breaking vote in the event of stalemates. The Democrats already control the House of Representatives.

As a result, a Biden administration could push through progressive policies, including massive investments in sustainable energy sources, more fiscal stimulus and tax hikes. Some analysts believe the more progressive wing of the Democratic wing would also look to axe the Keystone XL pipeline.

Calgary-based TC Energy, which has been working to advance its controversial US$14.4-billion Keystone XL project for years, fell roughly 1.5 per cent to $52.83 in trading Wednesday.

TC Energy spokesperson Terry Cunha said 3,000 people are currently working on the Keystone XL project, which will carry 830,000 barrels of oil per day between Alberta and the U.S. Gulf Coast.

Keystone XL faces an uncertain future under a Biden administration, National Bank Financial analyst Travis Wood wrote in a research note Wednesday, which nevertheless expected a rebound in Canadian energy stocks in 2021.

Wood wrote that a “resurgence” in cash flow and profits this year means “investors will take notice of the value inherent in the Canadian energy space, further bolstered by the general cyclical rotation into value.”

“In our view, this could lead to multiple expansion and share outperformance in certain names, but blink and you might miss it,” Wood wrote.

Globally, energy stocks rallied on news that OPEC kingpin Saudi Arabia would voluntarily scale back its production by 1 million barrels per day. Other industrial sectors in North America rallied on the expectation of more stimulus spending by reigning Democrats in the U.S, and brighter prospects for cyclical companies given that a Biden administration would accelerate vaccine rollouts and a quicker return to normalcy.

Investors are beginning to rotate out of “stay-at-home” stocks that have benefited from pandemic lockdowns and put more of their money into cyclical investments that could rebound when economies begin to reopen, said Laura Lau, senior vice-president and chief investment officer at Brompton Funds in Toronto.

“People have been hiding in the safer stocks. Now you can see the money is flowing back into the E&Ps (oil explorers and producers). You can see the money is flowing from gold into base metals. You can see some money flowing into financials,” Lau said.

Banks also had good reason to feel positive Wednesday — shares in U.S. banks jumped sharply.

On the TSX, insurance firms and banks pushed the heavyweight financials sector up 1.9 per cent with Sun Life Financial Inc. and Manulife Financial gaining 5.5 and 3.6 per cent, respectively.

“Insurance companies are typically the most sensitive to interest rates so that should be positive for them,” said Michael Currie, vice-president and investment adviser at TD Wealth.