TORONTO — Canada's main stock index enjoyed its strongest day of 2022 as the price of oil closed above US$80 a barrel to its highest level in two months.
At the same time, U.S. Federal Reserve chairman Jerome Powell reassured investors during his confirmation hearing that the central bank was prepared to tackle persistent inflation by raising interest rates.
"That's the message he has been very transparent about since he took away the transitory term from his comments previously. So I think the market is now becoming very comfortable with the assumption that rates will be on the rise," said Sid Mokhtari, executive director of institutional equity research at CIBC.
Many market observers expect the Fed will raise rates up to four times starting in March.
Meanwhile, U.S. bond yields have steadied at around 1.75 per cent after briefly rising above 1.8 per cent Monday.
"A lot of us are still looking for higher levels as we progress into the year and that should still carry the narrative in favour of value over growth," he said in an interview.
A resteepening of rates — a situation that allows banks to borrow at lower interest rates and lend at higher rates — is positive for cyclicals, financials and the TSX as a whole.
The S&P/TSX composite index gained 202.49 points Tuesday to 21,274.81 after starting the morning lower.
In New York, the Dow Jones industrial average was up 183.15 points at 36,252.02. The S&P 500 index was up 42.78 points at 4,713.07, while the Nasdaq composite was up 210.62 points at 15,153.45.
The technology sector rebounded while so-called value sectors such as energy and financials continued to outperform.
"It's the narrative for the rotation that we've seen in the past few weeks," Mokhtari said.
"The TSX index by definition is a value index, primarily tied to the performance of energy as well as the financials."
Energy was the star, delivering the strongest performance of eight sectors that rose Tuesday. It gained 3.3 per cent with shares of Secure Energy Service Inc. up 9.2 per cent and Baytex Energy Corp. seven per cent higher.
The February crude contract was up US$2.99 at US$81.22 per barrel and the February natural gas contract was up 17 cents at US$4.25 per mmBTU.
In fact, commodities performed strongly with crude, lumber, industrial-based metals and agriculture improving, that's usually a byproduct of a reflationary environment, Mokhtari said.
He said crude is getting a little overbought but moving in the right direction.
"We really don't see a lot of challenge for it until it gets toward . . . the previous levels that we had in October that were in the $84-85 level, so there's still more upside remaining. But it's very sticky as we get up to those levels."
Materials also increased as gold and copper prices both rose amid a weakening U.S. dollar with Lithium Americas Corp. shares up nearly 13 per cent.
The February gold contract was up US$19.70 at US$1,818.50 an ounce and the March copper contract was up 7.7 cents at US$4.43 a pound.
The Canadian dollar traded for 79.33 cents, the highest level since mid-November and compared with 78.87 cents US on Monday.
Technology increased 1.3 per cent as Nuvei Corp. climbed 8.9 per cent while Lightspeed Commerce Inc. and Shopify Inc. posted their first gains of the year.
Mokhtari expects Shopify will probably be "range bound" for some time while Lightspeed faces a tougher hill to climb after its shares collapsed following a short-seller's report last fall.
"It needs to go through a few quarters of being able to deliver what they have said in the past, and being able to show repricing resiliency."
This report by The Canadian Press was first published Jan. 11, 2022.
Companies in this story: (TSX:LSPD, TSX:SHOP, TSX:SES, TSX:BTE, TSX:NVEI, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press