S&P/TSX composite ends strong first week of 2021 by setting record intraday high

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TORONTO — Canada's main stock index concluded a strong first week of 2021 by setting another record intraday high that may bode well for the year.

The S&P/TSX composite index closed up 14.50 points to 18,042.07 on an afternoon recovery in trading to end about 16 points below the high set earlier in the day.

The market climbed 3.5 per cent over the past week, potentially signalling a strong year to come.

"Historically, when you do have a strong week or strong month in January that does tend to lead to a strong year," said Philip Petursson, chief investment strategist at Manulife Investment Management.

He said the week was packed with "perhaps a year's worth of excitement" in just a few days with the Georgia election run-off, OPEC's move to cut crude production, a riot in Washington, D.C., President Donald Trump conceding defeat, higher 10-year bond yields and weaker jobs reports.

Democrats winning control of the Senate encouraged investors to anticipate fiscal stimulus.

That excitement was partly tempered Friday when West Virginia's Democratic Senator Joe Manchin said he won't agree to $2,000 stimulus cheques. He reportedly watered down his objection later in the day, which helped lift stock markets on the day.

The climb in equity markets has prompted some to point to valuations rising too far, especially in the United States.

"I would not be surprised at all if we saw a correction of 10 to 15 per cent in the first quarter," Petursson said in an interview.

Nonetheless, he anticipates a recovery in the back half of the year will generate "mid to upper single-digit returns" for the year.

"I do think that this is a year that we can see the TSX actually outperform the S&P 500 for the full year in 2021."

Stronger commodities is good for energy and materials stocks and higher interest rates from bond yields bodes well for Canadian banks and insurance companies.

In New York, the Dow Jones industrial average and S&P 500 index hit record intraday highs. The 30-stock Dow closed up 56.84 points at 31,097.97 and the S&P 500 index gained 20.89 points to 3,824.68.

Meanwhile, the tech-heavy Nasdaq composite ended up 134.50 points at 13,201.98.

Materials was one of two sectors that lost ground on the TSX.

It dropped 3.4 per cent on lower gold prices as shares of Silvercorp Metals Inc. and Eldorado Gold dropped 8.3 and 7.6 per cent, respectively.

The February gold contract was down US$78.20 at US$1,835.40 an ounce and the March copper contract was down 2.25 cents at about $3.67 a pound.

Energy lost 1.2 per cent even though crude oil prices hit the highest level since February. Leading the decrease was Cenovus Energy Inc., whose shares fell three per cent. It was offset by a 5.1 per cent rise for Husky Energy Inc.

The February crude oil contract was up US$1.41 to US$52.24 per barrel and the February natural gas contract was down 2.9 cents US at US$2.70 per mmBTU.

Petursson attributed the decreases to some profit-taking.

The Canadian dollar traded for 78.71 cents US compared with 78.70 cents US on Thursday.

The technology sector led the TSX, gaining two per cent with BlackBerry Ltd. up 6.4 per cent and Shopify Inc. increasing 3.1 per cent.

Petursson doesn't believe that weak December jobs reports in Canada and the U.S. had much impact on investor sentiment on Friday.

Canada lost 62,600 jobs in December for the first decrease since April as the unemployment rate edged up to 8.6 per cent.

The U.S. shed jobs for the first time in eight months, losing 140,000 jobs last month amid new lockdowns prompted by higher COVID-19 infections.

"Anyone who has a view longer than say 30 days can see the economic environment getting better over the course of this year and the weaker labour data for December is not indicative of an economic trend," he said.

"It's just a highlight of the lockdowns that we saw last month and that may continue at least in Canada in January."

This report by The Canadian Press was first published Jan. 8, 2021.

Companies in this story: (TSX:SVM, TSX:ELD, TSX:BB, TSX:SHOP, TSX:CVE, TSX:HSE, TSX:TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press