S&P/TSX composite edges higher as energy sector gets lift from rising crude prices

·3 min read

TORONTO — Canada's main stock index moved higher for a third-straight day as the energy sector got a lift from crude oil prices hitting their highest level in a year.

The March crude oil contract was up 93 cents at US$55.69 per barrel after reaching a high US$56.33. The March natural gas contract was down 5.6 cents at US$2.79 per mmBTU.

Increased crude prices powered the key energy sector up 3.7 per cent with shares of MEG Energy Corp. gaining 12.6 per cent and Enerplus Corp. up 8.4 per cent.

"To us, as long as you're above $50 level, we're in good shape," said Sid Mokhtari, executive director of institutional equity research at CIBC.

Despite the ongoing challenges facing the sector, he said that the trend in a stable direction will help energy producers in Canada and the U.S.

Crude prices were supported by U.S. crude stockpiles falling by one million barrels last week to its lowest level since March.

In addition to lower supply, expectations are for oil demand to pickup later this year once more vaccinations are rolled out to combat the spread of COVID-19.

"As economic recovery takes hold ... you could make the case that demand and supply side are becoming more balanced, which is net positive," Mokhtari said in an interview.

Overall, the S&P/TSX composite index closed up 41.42 points to 17,915.91 for a 3.3 per cent lift in the first three days of February.

In New York, the Dow Jones industrial average was up 36.12 points at 30,723.60. The S&P 500 index was up 3.86 points at 3,830.17, while the Nasdaq composite slipped 2.24 points at 13,610.54.

The Canadian dollar traded for 78.23 cents US compared with 78.02 cents US on Tuesday.

Mokhtari said money rotated into the cyclical parts of the market such as energy, materials, consumer discretionary and financials, which should be perceived as a net positive.

Materials rose with First Quantum Minerals Ltd. up five per cent as silver prices stabilized following days of extreme volatility.

The April gold contract was up US$1.70 at US$1,835.10 an ounce and the March copper contract was up 4.1 cents at nearly US$3.57 a pound.

The consumer discretionary sector was helped by the strength of auto parts companies Magna International Inc. and Linamar Corp., whose shares rose 3.7 and 2.1 per cent, respectively.

A steepening yield curve supported the heavyweight financials sector as the U.S. 10-year treasury yield climbed to 1.14 per cent.

"Cyclicals are benefiting from this re-steepening of the curve in the U.S," he added.

The health care sector led the TSX, gaining 5.5 per cent with cannabis producers Aphria Inc. rising 12.5 per cent, while Canopy Growth Corp. and Cronos Group Inc. each climbed 8.1 per cent.

The sector has gotten support from signals out of Washington, D.C., that federal legalization could be coming this year and Jazz Pharmaceuticals agreeing to a US$7.2-billion deal to acquire cannabis company GW Pharmaceuticals.

Mokhtari urges caution despite the early stock market gains in February, as the month following a U.S. election has historically been the second-worst month of the year.

This month's rise follows a January which saw early gains wiped out in a four-per-cent correction at month's end.

"This is the confirmed bull market uptrend so we view setbacks like we saw in the month of January ... as opportunistic buy windows," Mokhtari said.

"This is actually good, not necessarily a bad thing."

This report by The Canadian Press was first published Feb. 3, 2021.

Companies in this story: (TSX:WEED, TSX:CRON, TSX:APHA, TSX:MEG, TSX:ERF, TSX:MG, TSX:LNR, TSX:FM, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press