TSX hits 19,000 points for first time on supportive outlook from U.S. Federal Reserve

·4 min read

TORONTO — Canada's main stock index hit 19,000 points for the first time Wednesday on a supportive outlook by the U.S. Federal Reserve.

The S&P/TSX composite index erased morning losses to close up 109.09 points to 18,983.10 after hitting an intraday record of 19,037.13.

In New York, the Dow Jones industrial average was up 189.42 points at 33,015.37 to surpass 33,000 for the first time. The S&P 500 index gained 11.41 points to a record close of 3,974.12, while the Nasdaq composite increased 53.63 points at 13,525.20.

Sentiment was buoyed by the U.S. central bank's bullish outlook for economic growth and reduced unemployment that should keep its benchmark interest rate near zero through 2023 despite increased inflation.

The Fed significantly upgraded its forecasts for growth and inflation. It now envisions the economy expanding 6.5 per cent this year, up sharply from its previous projection in December of 4.2 per cent.

The increase is being propelled by a rise in COVID-19 vaccinations, supported by a US$1.9-trillion fiscal relief package.

Unemployment is expected to fall from the current 6.2 per cent to 4.5 per cent by year's end and to 3.9 per cent, near a healthy level, at the end of 2022.

It raised its forecast for inflation by the end of this year to 2.4 per cent from 1.8 per cent. That level of inflation would finally surpass the Fed's two per cent annual target after years of chronically low inflation. But the Fed foresees inflation falling back to two per cent in 2022.

The central bank also said it would continue to buy US$120 billion in bonds each month to keep longer-term borrowing costs down.

Markets responded positively to the pledge of ongoing support and upbeat assessment of the global economy, said Candice Bangsund, portfolio manager for Fiera Capital.

"This essentially has alleviated fears of a hawkish turn from the Fed which would risk derailing the economic recovery and the record-breaking equity market rally," she said in an interview.

"So when you think about it, taken together, it's a very lucrative environment for stocks and risk assets in general."

The Fed's outlook and projections are consistent with what officials have telegraphed about remaining supportive until the recovery is well underway.

When asked about timing of the next move, chairman Jerome Powell insisted it wasn't time to discuss an exit strategy.

The Fed reinforced the rotation toward economically sensitive sectors such as energy, financials, materials and industrials over technology and telecommunications.

That benefits the TSX because of its exposure to these sectors, which resulted in it outperforming U.S. stock markets, said Bangsund.

"Very much a compelling proposition for equity investors," she said, noting that her year-end target for the TSX has been revised upwards to 20,000.

Bond yields increased to a 13-month high of 1.689 per cent before shaving some of the gains to reach 1.65 per cent.

A steepened yield curve hurts the technology sector.

Commodity sectors rose with energy up 1.4 per cent despite a dip in crude oil prices.

Enerplus Corp. led with shares gaining 7.8 per cent followed by Vermilion Energy Inc. at 5.6 per cent.

The May crude oil contract was down 88 cents at US$63.98 per barrel and the April natural gas contract was down four cents at US$2.52 per mmBTU.

Crude prices fell on a surprising 2.4-million-barrel increase in U.S. stockpiles last week to the highest level since December.

In addition, the International Energy Agency gave a downbeat assessment of crude markets in its monthly report. It said oil markets are not on the verge of a new price supercycle with supplies remaining plentiful.

The Canadian dollar traded for 80.22 cents US compared with 80.29 cents US on Tuesday.

Materials also climbed 1.4 per cent despite lower gold prices with Torex Gold Resources Inc. up seven per cent, B2Gold Corp. up 5.1 per cent and Oceanagold Corp. 4.6 per cent higher.

The April gold contract was down US$2.10 at US$1,728.80 an ounce and the May copper contract was up four cents at US$4.11 a pound.

Technology was one of five sectors that fell on the day with shares of Lightspeed POS Inc. down three per cent but Shopify Inc. up 2.4 per cent.

Telecommunications slipped for the first time in three days as Rogers Communications Inc. lost five per cent, the first drop since announcing its blockbuster $26-billion deal to buy Shaw Communications Inc.

This report by The Canadian Press was first published March 17, 2021.

Companies in this story: (TSX:SJR.B, TSX:RCI.B, TSX:OGC, TSX:BTO, TSX:TXG, TSX:ERF, TSX:VET, TSX:LSPD, TSX:SHOP, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press