TSX drops into red despite oil spike

The Toronto stock market closed in the red Thursday even as oil prices continued their recent advance and the financial sector rebounded from earlier losses to reach positive territory. The S&P/TSX composite was down 64.10 points at 15,386.77 after rising nearly 62 points on Wednesday. Meanwhile, the loonie extended its gains for a third day, rising 0.80 of a cent (U.S.) to 82.1 cents.

Chris King, portfolio manager at Morgan, Meighen and Associates, said the TSX could start to give back some of the gains it achieved in recent sessions as oil prices inched higher.

“The market in general, over the last couple of days, is looking through the valley — which is the current energy price — and assuming that better days are ahead in the short term for energy, and that’s what the stocks are pricing in,” said King.

He cautioned that although he is constructive on the energy sector in the long term, energy stocks could suffer over the next few weeks.

“The danger is that although I think the long-term valuation may be appropriate, in the short term we’re still adding significantly to supply, and we really are crossing our fingers that demand mops up a lot of supply to put us in balance, allowing the true spot prices to move higher,” said King.

“Really we’re going to have to see better earnings out of the energy sec- tor to really support our overall valuations in the TSX, and that won’t come for a while. I think this is a decent level but I would have caution that we may see some pullback from this point.”

On Wall Street, markets were relatively flat after a recent spate of uninspiring economic reports. For instance, the number of Americans who applied for unemployment support last week rose for the second consecutive week.

The Dow Jones industrial average was down 6.84 points at 18,105.77, while the Nasdaq fell 3.23 points to 5,007.79 and the S&P 500 slipped 1.64 points to 2,104.99.

Although analysts have been anticipating a rough earnings season, with the strong U.S. dollar expected to hurt profits at large, multinational companies, most of the earnings reports that have come in so far have beat analyst expectations.

Citigroup increased its quarterly income as it trimmed expenses, compensating for a decline in revenue and surpassing analyst predictions.

“We’ve only had a handful of companies reporting but, for the most part, they’ve actually been pretty good,” said King. “The quarter might not go so badly.”

On the commodity markets, the May crude contract rose 32 cents to $56.71 a barrel.

The June gold contract edged down $3.30 to $1,198.00 an ounce and May copper surged six cents to $2.77 a pound.