TORONTO — Canada's main stock index moved higher Tuesday even though the energy and materials sectors were hurt by the International Monetary Fund downgrading its global economic outlook due to the Russian invasion of Ukraine and pandemic lockdowns in China.
Energy was the biggest laggard as crude oil prices fell 5.2 per cent while materials was close behind as the price of bullion fell.
Michael Greenberg, portfolio manager at Franklin Templeton Investment Solutions, says demand for energy would be expected to decrease with a forecast of slower global growth. The IMF estimates the world economy will grow 3.6 per cent this year, down from 6.1 per cent last year and from 4.4 per cent forecast in January. Canada's economy is expected to grow 3.9 per cent in 2022 and 2.8 per cent in 2023.
Expectations for aggressive interest rate hikes by the U.S. Federal Reserve and Bank of Canada, designed to get inflation under control, are also headwinds to energy markets.
"So that is a part of the market that we're seeing red on the screens, coupled with higher bond yields yet again, as well as another factor," he said in an interview.
Ten-year U.S. treasury bond yields increased to 2.94 per cent, the highest level since 2018. Growth of two- and five-year bond yields was even stronger in a reflection that the central banks are going to be aggressive to combat their inflation problems, Greenberg said.
"It's been a while since we've kind of been testing three per cent, which is a pretty big jump from where we were even last year."
The technology sector led markets despite the move up by bond yields.
Greenberg said healthy corporate earnings and a flattening yield curve amid a slower economy tends to reward growth companies that have done poorly of late.
U.S. stock markets outperformed the Toronto-based market because of their heavier weighting on tech companies, while energy and materials are a bigger part of the TSX.
"So we're not benefiting as much from the tech tailwind and we're getting hit a little bit more by the energy headwind today than our U.S. counterparts."
The S&P/TSX composite index closed up 140.41 points to 22,018.82.
In New York, the Dow Jones industrial average was up 499.51 points at 34,911.20. The S&P 500 index was up 70.52 points at 4,462.21, while the Nasdaq composite was up 287.30 points or 2.2 per cent at 13,619.66.
Tech climbed 2.7 per cent as shares of Shopify Inc. increased 4.3 per cent.
NuVista Energy Ltd. decreased 5.3 per cent as the June crude contract was down US$5.56 at US$102.05 per barrel and the May natural gas contract was down 64.4 cents at US$7.18 per mmBTU.
The June gold contract was down US$27.40 at US$1,959.00 an ounce and the May copper contract was down 8.4 cents at US$4.72 a pound.
The consumer discretionary and consumer staples sectors also performed strongly, gaining 2.5 and 2.4 per cent, respectively, with auto parts manufacturer Martinrea International Inc. up 5.1 per cent and grocer Loblaw Company 3.1 per cent higher.
Industrials was helped by Air Canada, whose shares were up 3.6 per cent. That followed the trend among U.S. airlines, which rose following the lifting of the mask mandate on flights.
Airlines are also expected to benefit from a shift to increased demand for services from demand for goods that was driven by the COVID-19 pandemic.
Meanwhile, the loonie weakened only slightly despite the drop in crude prices, performing better than the British pound, Japanese yen and Euro.
The Canadian dollar traded for 79.21 cents US compared with 79.25 cents US on Monday.
"Pretty muted day for the CAD given oil prices are down about five per cent so they're actually holding in not too bad."
This report by The Canadian Press was first published April 19, 2022.
Companies in this story: (TSX:NVA, TSX:AC, TSX:SHOP, TSX:ATZ, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press
