BARGAIN HUNTERS GIVE STOCKS A BOOST
The Toronto stock market charged ahead for a second day Friday, racking up a strong tripled-digit advance as traders bought up stocks badly beaten down over the course of a string of market jolts and amid speculation that the U.S. Federal Reserve might extend a key stimulus program.
The S&P/TSX composite index jumped 174.71 points to 14,227.68, leaving the TSX little changed since last Friday after six weeks of punishing losses that, at its worst at mid-week, saw the Toronto market down 12% from the recent highs of early September.
“You often see these reactionary bounces back up,” said Chris King, a portfolio manager at Morgan Meighen and Associates.
It’s too soon to call an end to the pullbacks seen on the TSX and New York markets — something King said was necessary.
“Equity markets valuations were becoming a bit stretched for core earnings. And core earnings I think are still intact but you don’t want equity markets to be too far away from them on a valuation basis and I think this is all good,” he said. “We’re very happy to see this correction finally happen.”
The Canadian dollar shed US0.22¢ to US88.68¢ amid data showing Canada’s cost of living was up 0.2% in September on a seasonally adjusted basis after increasing 0.1% in August.
U.S. indexes also registered solid gains as traders reacted to comments by St. Louis Federal Reserve Bank president James Bullard that the Fed should consider delaying the end of its massive bond purchase program, given declining inflation expectations.
The quantitative easing program is set to finish at the end of this month and has been one of the reasons for the recent volatility on markets that has slashed the value of stocks across the board. The program has been credited with keeping long-term rates low and fuelling a strong rally on stock markets over the last few years.
Positive earnings news from General Electric and Morgan Stanley and rising consumer confidence also helped push the Dow Jones industrials up 263.17 points to 16,380.41. The Nasdaq ran ahead 41.05 points to 4,258.44 and the S&P 500 index advanced 24 points to 1,886.76 as the University of Michigan’s consumer confidence index for October came in at 86.4, beating expectations for a read of 84.
U.S. markets have so far avoided formally falling into correction, defined as a drop of 10% from recent highs, but that could change. Losses this week left the Dow down 5% since Sept. 19 while the S&P 500 has fallen 6.5%. Both indexes had been at or close to record levels and a correction had been widely expected since there hadn’t been a retracement in three years.
December copper was up US2¢ at US$3 a pound and the base metals sector gained 2%.
The gold sector was the weak link, down about 3% as December bullion faded US$2.20 to US$1,238.30 an ounce.
For the week, the TSX was flat while the Dow industrials shed 164 points or 1%.