Dow sets intraday record, TSX hits nine-month high on reaction to COVID-19 vaccine

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TORONTO — The Dow Jones industrial average brushed up against 30,000 points before closing at a record high on Monday while Canada's main stock index climbed to a nine-month high on positive test results for a second potential COVID-19 vaccine. 

Moderna's announcement that its vaccine was 94 per cent effective in trials propelled the advances, much as Pfizer's did a week earlier.

The continuing rally in equity markets is a reflection of the improved optimism about the outlook for the economic rebound, both in North America and globally, said Craig Fehr, investment strategist at Edward Jones.

"I think that's obviously spurred by continued positive news around the vaccine, which perhaps brightens the light at the end of the tunnel a little faster," he said in an interview. 

The vaccine news has also sparked a rotation within markets, to cyclical and value sectors that have lagged from technology and materials that have driven past market gains.

These value-type investments are more tied to a sustained and durable economic rebound than the sectors that benefited from a stay-at-home trend because of the pandemic.

That internal market shift is good for the TSX because financials, energy and materials carry a larger weight in the index whereas it wasn't benefiting as much when technology was leading the way.

It's also a great sign about Canada's economic recovery and "confirmation that there will be a durable recovery that will take place domestically," said Fehr.

At the same time, he said Canada's economic rebound might be held back a bit because the country came into the downturn with high consumer debt levels and a frothy housing market.

"So while this is certainly good news in terms of the longer term outlook for the expansion, I do think that the pace of growth might be tempered in the interim by the fact that some of the conditions existed before we got here."

The S&P/TSX composite index closed up 214.17 points to 16,889.81. That's the highest closing since Feb. 26

In New York, the Dow Jones industrial average was up 470.63 points at 29,950.44 for a record close after reaching 29,964.29 in earlier trading. The S&P 500 index was up 41.76 points at 3,626.91, while the Nasdaq composite was up 94.84 points at 11,924.13.

Monday's market reaction was strong but a little more muted than reaction after last week's surprise announcement by Pfizer, said Fehr.

"As we continue to get more incremental news that there's more than one viable vaccine, perhaps the reaction in the market gets a little more muted each time because some of that was already baked in." 

Fehr expects the market will continue to respond favourably to "anything that suggests that the pandemic has a shelf life, so to speak."

He now thinks the investor focus will shift to distribution for mass inoculation.

"It's all serving to increase confidence in the sustainability of the economic rebound into next year and beyond." 

The Canadian dollar traded for 76.42 cents US compared with 76.06 cents US on Friday. 

Energy led all sectors on the TSX, gaining 5.2 per cent as shares of Enerplus Corp., MEG Energy Corp. and Suncor Energy Inc. increased 8.8, 7.8 and 7.4 per cent, respectively.

The December crude contract was up US$1.21 at US$41.34 per barrel and the December natural gas contract was down 30 cents at US$2.70 per mmBTU.

Financials gained 2.4 per cent led by Brookfield Asset Management Inc. which rose 6.6 per cent, while Manulife Financial gained five per cent in heavy trading and Canada's largest banks were up between 0.71 and 3.2 per cent.

Real estate and consumer discretionary were also higher.

Materials was among four sectors that were lower as the price of gold fell.

The December gold contract was up US$1.60 at US$1,887.80 an ounce and the December copper contract was up 4.4 cents at US$3.22 a pound. 

"Some of the shine might be coming off gold today as those other, more cyclical, more risk-oriented assets, stocks, oil, small cap equities in particular … are outperforming today."

This report by The Canadian Press was first published Nov. 16, 2020. 

Companies in this story: (TSX:ERF, TSX:MEG, TSX:SU, TSX:BAM, TSX:MFC, TSX:GSPTSE, TSX:CADUSD=X) 

Ross Marowits, The Canadian Press