The TSX rose on Friday due to strong earnings and greater-than-expected economic growth.
The Canadian energy sector was up 2.6 per cent in early trading, expanding its gains to 45 per cent since January, the highest in the index.
After Russia invaded Ukraine, Imperial Oil reported a six-fold jump in Q2 profits from surging energy prices. Down south, Exxon, Chevron and Shell also announced record profits.
Financials added 1.1 per cent on momentum from rising rates, while industrials added 1.3 per cent on favourable preliminary output data from Statistics Canada.
TMX Group was up almost 6 per cent after surpassing adjusted earnings expectations, with revenue from derivatives trading and clearing soaring by 89 per cent.
According to Statistics Canada, the economy likely grew by 4.6 per cent YoY in Q2, well above the Bank of Canada’s 4-per-cent projection, lending confidence that higher borrowing costs are in store for the institution’s September meeting.
Though still expanding, the economy has cooled down somewhat from its strong start to the year. Output in June is tracking toward a 0.1-per-cent gain thanks to likely bounce-backs from construction and manufacturing, both of which declined in May, contributing to stalled growth for the month.
Approximately one-third of the 30,000 condos slated to be built this year have been cancelled or postponed due to higher costs, higher rates and labour shortages. Homebuilding is experiencing a similar fate, resulting in skyrocketing average monthly rent prices on top of higher food and fuel costs. According to the Toronto Regional Real Estate Board, newly-leased one-bedroom apartments in Toronto jumped to C$2,269 in Q2, up 20 per cent YoY.
Analyst consensus sees the Canadian economy dipping below 2 per cent YoY growth in the second half of the year and into 2023.
On Wednesday, the U.S. Fed instituted a 0.75-per-cent rate hike, bringing its benchmark range to between 2.25-2.5 per cent. In spite of this move, as well as the U.S. economy shrinking for a second straight quarter, strong quarterly results from megacap tech stocks like Apple and Amazon gave the S&P 500 reason to rejoice. The index has added 200 points over the past two days – tracking toward its best month since November 2020 – shrugging off record inflation and commodity and worker shortages stifling the global industrial complex.
Chair Jerome Powell suggested another large rate increase is on the table for September’s meeting with a slowdown in increases likely coming thereafter.
The question remains whether the rate cycle will see an abrupt reversal or linger higher for longer. Regardless of the outcome, strong performance from North American energy leaders and U.S. tech makes for a rosy outlook into the second half of the year from current correction territory.
Oil, for its part, is poised to end the week up by 4.25 per cent, with WTI revisiting the US$100 per barrel mark on global supply concerns. The benchmark is up over 30 per cent this year despite having shed its gains prompted by Russia’s invasion of Ukraine. That said, oil futures will likely see consecutive monthly declines, the first since 2020, due to a pervasive sense that high prices have overstayed their welcome.
European sanctions on Russian oil, followed by likely retaliation, may generate yet more turmoil for investors and consumers later this year.
The TSX closed up by 1.21 per cent heading into the long weekend. The index is down by 7.19 per cent for the year, just outside of correction territory thanks to elevated oil, grain and natural gas prices, while the U.S. (-14.13 per cent), Developed International (-17.25 per cent), and Emerging Markets (-17.82 per cent) are still very much within it.
While this may seem like a gloomy scenario, it is, in fact, an opportunity to ignore fortune-telling pundits and cast one’s gaze toward the long term. Despite current share prices, which offer investors more attractive entry points, broad indices have produced considerable returns over the last five years, including 65 per cent for the S&P 500, 90 per cent for the Nasdaq 100, and 29 per cent for the TSX.
Market movers
Over the second half of the week, our readers have paid the closest attention to firms in lithium, oil and gas, and plant-based wellness making waves with prospective investors:
Simply Better Brands announced that its No B.S. Skincare brand has expanded into 3,200 CVS stores across the U.S.
Secure Energy Services (SES) generated revenue of $355 million in Q2 2022, up 203 per cent YoY. It also achieved net income of $54 million, an increase of $67 million YoY.
Finally, Critical Elements Lithium (CRE) filed an NI 43-101 report on its Rose Lithium-Tantalum Project in Quebec.
Noteworthy capital raises to close off the week include Infinity Stone Ventures, Tidewater Midstream and VSBLTY Groupe Technologies.
