February 17, 2022

S&P/TSX composite has best half-year start in decades as it climbs 15.7 per cent

Canada’s main stock index ended its best half-year start in decades as it posted a sixth straight month of gains to climb 15.7 per cent to date in 2021.

“I think it’s going to go down as one of the best starts to a year ever,” said Greg Taylor, chief investment officer of Purpose Investments.

It’s also one of the first times in a while that the TSX outperformed the S&P 500, which gained 14.4 per cent, while the Dow Jones industrial average and the Nasdaq composite each ended up about 12.5 per cent.

The gains have been especially good for retail investors who have seen their portfolios increase in value.

“If Canadian investors aren’t happy with the first six months of performance right now, I’m not sure what will make them happy,” he said in an interview.

Taylor said the historic climb caught many observers off-guard because it followed a wild 2020 in which markets sank and then recovered. And people wondered if the gains after last November’s U.S. presidential election were too much, too fast.

While markets usually excel in the second half of the year after such a strong start, this year could be different, said Taylor.

The U.S. Federal Reserve is expected to signal how soon it will pull back on massive monetary stimulus that was put in place to address the impact of COVID-19.

As long as the economy remains strong, the reopening stays on pace and there’s no fourth wave of the virus, global central banks should look at tapering, he said.

“It’s going to be a really interesting test for the strength of the market to see if central banks can do this, and if they can be successful without upsetting anything and causing a bit of a pullback,” Taylor said.

Taylor expects the year will end higher but the pace of gains over the rest of the year will be slower with some added volatility.

The year got off to such a strong start because of fiscal and monetary stimulus and the amount of cash in the system. Much of the recent gains have been the result of the reopening sectors strengthening, including financials, energy, materials and industrials.

“And the good thing for Canada is those are all sectors that we’re more heavily weighted to, so that’s the positive development for Canada.”

The S&P/TSX composite index ended the second quarter by closing down 5.44 points to 20,165.58 for a 7.8 per cent gain in the last three months.

In New York, the Dow Jones industrial average was up 210.22 points at 34,502.52. The S&P 500 index was up 5.70 points to a record close of 4,297.50, while the Nasdaq composite was down 24.39 points at 14,503.95.

The Canadian dollar traded for 80.68 cents US compared with 80.75 cents US on Tuesday.

Canada’s economy contracted 0.3 per cent in April and is expected to fall in May.

Technology was the biggest laggard on the day, losing 1.1 per cent with Lightspeed POS Inc. down two per cent and Shopify Inc. off 1.4 per cent.

Materials and energy led the TSX on Wednesday as metals, crude oil and natural gas all moved higher.

The August gold contract was up US$8 at US$1,771.60 an ounce and the September copper contract was up 2.45 cents at US$4.29 a pound.

The August crude oil contract was up 49 cents at US$73.47 per barrel and the August natural gas contract was up two cents at US$3.65 per mmBTU.

Oil rose on a pullback of U.S. crude inventories ahead of an OPEC meeting where output could increase.

But Taylor said prices have also been supported by a lack of capital preventing oil producers from easily adding supply.

Shares of MEG Energy Corp. and Tourmaline Oil Corp. increased 2.9 and 2.8 per cent, respectively.

Consumer staples also gained ground as Alimentation Couche-Tard Inc. increased 3.5 per cent after reporting results that beat expectations.

This report by The Canadian Press was first published June 30, 2021.

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