Canada’s main stock index moved to within reach of a record high as cannabis and renewable energy stocks got a lift from Democrats winning control of the U.S. Senate and crude oil closed above US$50 a barrel, boosting energy stocks for a second day in a row.
The S&P/TSX composite index closed Wednesday up 145.60 points to 17,828.11. It moved to within 46 points of last February’s peak of 17,970.51 in earlier trading.
Conspicuously on the sidelines in the market rally, however, was Keystone XL proponent TC Energy Corp. A Biden administration could push through progressive policies, including massive investments in sustainable energy sources, more fiscal stimulus and tax hikes, but some analysts believe the more progressive wing of the Democrats would also look to axe the Keystone XL pipeline.
The S&P500 closed 0.6 per cent higher to a record 3,748.14 points, having pulled back late in the day after protestors stormed the U.S. Capitol seeking to force Congress to undo President Donald Trump’s election loss to Biden. The mob had disrupted a joint session of Congress chaired by Vice-President Mike Pence to formally certify Biden’s victory.
“People are focused on the stimulus that will come,” said Tom Martin, senior portfolio manager, at Globalt Investments in Atlanta. “The question is how big will that be and what would be contained in it. But anytime you have additional money to be spent, that’s a positive for the markets.”
The S&P/TSX Composite Index rose 0.62 per cent to close at 17,792.83, led by energy stocks, which as a group rose 1.09 per cent. But Calgary-based TC Energy, which has been working to advance its controversial US$14.4-billion Keystone XL project for years under its previous name, TransCanada, fell roughly 1.5 per cent to $52.83.
TC Energy spokesperson Terry Cunha said 3,000 people are currently working on the Keystone XL project, which will carry 830,000 barrels of oil per day between Alberta and the U.S. Gulf Coast.
“Our focus in early 2021 is to conclude the pump station and pipeline construction that is currently underway in Canada and the U.S., while initiating new pipeline and pump station construction activities in Canada and the United States later this summer,” Cunha said in an email. He did not address questions about how Democrat control of U.S. Congress could affect the project.
Keystone XL faces an uncertain future under a Biden administration, National Bank Financial analyst Travis Wood wrote in a research note Wednesday, but nevertheless expected a rebound in Canadian energy stocks in 2021.
Wood wrote that a “resurgence” in cash flow and profits this year means “investors will take notice of the value inherent in the Canadian energy space, further bolstered by the general cyclical rotation into value.”
“In our view, this could lead to multiple expansion and share outperformance in certain names, but blink and you might miss it,” Wood wrote.
Indeed, TC Energy was an outlier Tuesday as energy stocks globally rallied on news that the Organization of Petroleum Exporting Countries kingpin Saudi Arabia would voluntarily scale back its production by one million barrels per day. Other industrial sectors in North America rallied on the expectation of more U.S. stimulus spending, and brighter prospects for cyclical companies given that a Biden administration would accelerate vaccine rollouts and a quicker return to normality.
Investors are beginning to rotate out of “stay-at-home” stocks that have benefited from lockdowns, putting more of their money into cyclical investments that could rebound when economies begin to re-open, said Laura Lau, senior vice-president and chief investment officer at Brompton Funds in Toronto.
“People have been hiding in the safer stocks. Now you can see the money is flowing back into the E&Ps (oil explorers and producers). You can see the money is flowing from gold into base metals. You can see some money flowing into financials,” Lau said.
Banks also had good reason to feel positive Wednesday – shares in U.S. banks jumped sharply on expectations of more stimulus spending from a Democrat-controlled White House, House of Representatives and Senate and more measures to curb the COVID-19 pandemic.
Goldman Sachs Group AG rose 5.4 per cent to US$285.55 on the New York Stock Exchange and its competitors rose more. Citigroup Inc. shares rose 5.7 per cent to US$65.25 and Bank of America Corp. was up more than six per cent to US$32.16.
“On balance, we think investors should maintain a positive perspective on the outcome (of the Georgia elections),” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a report.
“Near-term volatility over the prospects of a unified government will likely be short-lived and soon overshadowed by investor expectations for a retreat of the pandemic in the months ahead. We retain a positive longer-term outlook for U.S. equities in general, and cyclicals in particular, as the economic recovery accelerates in the second quarter,” Haefele wrote.
Other big winners Tuesday included renewable electric utilities such as Boralex Inc. and Brookfield Renewable Partners LP and cannabis stocks given expectations that a Democratic Congress could move to legalize recreational marijuana use. On Wednesday, New York Governor Andrew Cuomo announced a proposal to legalize marijuana for recreational use in his populous state.
Canopy Growth Corp. shares jumped 13 per cent, or 4.39, to $38.61 each on the TSX while competitors Aurora Cannabis Inc. was up nine per cent and Cronos Group Inc. rose almost 16 per cent, or $1.51, to $11.08 per share at one stage on Tuesday.
Still, sectors that had laid the gains last year were in retreat on Wednesday.
Big Tech stocks in the U.S. fell as investors expect a Biden administration will follow moves by some Western countries for more regulations on companies such as Facebook Inc., which fell more than 2.8 per cent to US$263.31. Increased risk of antitrust scrutiny also pressured shares, with Apple Inc., Microsoft Corp., Amazon.com Inc. and Google parent Alphabet Inc. also falling. The tech-heavy Nasdaq Composite index dropped 0.61 per cent to 12,740.79.
“Are the Democrats going to come down harder on the tech stocks?” Lau asked. “I think this is a bipartisan issue. I think Democrats and Republicans would both be concerned about the dominance of technology.”
With files from Thomson Reuters and The Canadian Press
• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan
TSX nears record high as cannabis, renewables lifted by blue wave
2021-01-06 23:49:26
