The Canadian stock index on Wednesday benefited from broad-based strength in Canadian stocks, led by battery metals, while the U.S. market also rose.
Brian Gardner, senior wealth manager at Raymond James’ Velocity Investment Partners, said TSX has room to “make up” in the second half of the year after tech stocks edged higher in the first half of the year.
“I think the financial industry can weather the storm a little better than people planned,” he said, adding that the energy sector could also have upside potential.
“At the moment, I think there is still room to operate the TSX relative to where the S&P 500 sits,” she said.
The S&P/TSX Composite Index rose 114.60 points to 20,491.17.
In New York, the Dow Jones Industrial Average rose 109.28 points to 35,061.21, the S&P 500 index rose 10.74 points to 4,565.72, and the Nasdaq Composite rose 4.38 points to 14,358.02.
Gardner said investors had high hopes of a soft landing and second-quarter U.S. earnings had beaten so far low expectations. He said the market is still pricing in a rate hike by the Federal Reserve next week, but earnings hurdles have risen slightly as recent data show the economy remains resilient amid rising interest rates.
“Despite inflation, despite some weakness in consumers, there are still companies outperforming expectations,” he said.
“With inflation continuing to fall without unemployment rising much more than most expected, I suspect that people’s and investors’ views are shifting to (a) the possibility of a more resilient economy.”
But Gardner said there remain concerns about Canadians’ high debt levels and the ability of consumers to weather higher interest rates.
“Ultimately, I feel like we have to go through a recession as part of the economic cycle.
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The Nasdaq lagged behind other indexes on Wednesday, gaining only a few points.
The tech-heavy index faces a rebalancing of the Nasdaq 100 over the weekend. So some investors may be starting to take profits on higher tech stocks ahead of the shift, Gardner said.
Gardner said the concentration of tech giants such as Microsoft, Nvidia and Apple has distorted the Nasdaq’s performance so far this year.
“The index will undergo a special rebalancing, reducing the weight of the largest holdings in the index and increasing the weight of other stocks,” he said.
“I think we’re seeing some[exchange-traded funds]get a little bit ahead of that, but if the index needs to devalue some of these stocks and give more weight to some that aren’t participating in the rally, it will obviously affect the market.”
The Canadian dollar traded at 75.93 cents in the US and 75.82 cents in the US on Tuesday.
Crude oil contracts fell 37 cents to $75.29 per barrel in September, while natural gas contracts fell 3 cents to $2.60 per mmBTU in August.
August gold remained unchanged at US$1,980.80 per ounce, while September copper fell 2 cents to US$3.81 per pound.
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