TORONTO — North American stock markets ended the week on fire following surprisingly positive jobs reports in Canada and the United States.
The S&P/TSX composite index hit a three-month high and closed up 326.20 points or 2.1 per cent at 15,854.07. It gained nearly 4.4 per cent for the week and is just 12 per cent off February's record high, recorded before the sharp downturn as the COVID-19 pandemic took hold.
The U.S. markets were even stronger, with the Nasdaq composite index becoming the first of North America's indexes to return to record-setting territory.
It ended the day at 9,814.08 points, up 198.27 points after hitting an intraday high of 9,845.69. The technology-heavy index last set a record high of 9,838.37 on Feb. 19.
While investors have in the past shrugged off horrendous economic data due to COVID-19, they took notice after the numbers shattered expectations, said Philip Petursson, chief investment strategist at Manulife Investment Management.
"Not only did it do better than what was thought but it was a job gain and that's really what I think caught the market off guard," he said in an interview.
U.S. employers added 2.5 million jobs in May, compared with an expected drop of more than eight million.
The job gains which were even higher in the private sector followed April's plunge of 20.69 million. The unemployment rate fell to 13.3 per cent, a still sizable number.
In Canada, a surprising 289,600 jobs were added even though the unemployment rate reached a record high of 13.7 per cent.
While May's job numbers could be revised downwards in revisions, their unexpected strength buoyed market sentiment about the economic recovery.
The big question for the market is whether there will be a recovery of corporate earnings, that he suspects is probably still longer off.
"I think investors, now given the level that we are at, may take a breather and may start to really look closer at the fundamentals of the market like valuation, in particular, and what the earnings outlook might look like for the next 18 months. And it wouldn't surprise me at all if we saw a pause in this rally," he said.
The TSX enjoyed a broad-based rally with 10 of the 11 major sectors rising — materials being the only laggard.
It fell as a rise in copper prices couldn't offset the impact from a drop in gold prices.
The August gold contract was down US$44.40 at US$1,683.00 an ounce and the July copper contract was up 6.6 cents at US$2.55 a pound.
Energy was the big leader, soaring 7.9 per cent as crude oil prices climbed for a sixth consecutive week.
That sent the loonie higher. The Canadian dollar traded for 74.47 US compared with 74.03 cents US on Thursday.
The July crude contract was up US$2.14 or 5.7 per cent at US$39.55 per barrel and the July natural gas contract was down four cents at US$1.78 per mmBTU.
Crude prices ended 11.4 per cent higher for the week on the back of economic reopenings that spurred demand and the potential for OPEC and Russia to extend production cuts.
Shares of oil pipeline services provider Shawcor Ltd. soared 70 per cent, while energy producers Baytex Energy Corp. was up 25 per cent and Suncor Energy Inc. 10 per cent in heavy trading.
"The way you factor that into the oil producers is that every dollar the price per barrel goes up at this point goes right down to the bottom line. And so you have leverage in the oil producers over and above the oil gains themselves," said Petursson.
The heavyweight financials sector gained 3.1 per cent with Manulife Financial Corp. up 5.6 per cent and the Toronto-Dominion Bank up 4.2 per cent.
Real estate was up 3.6 per cent, industrials 2.5 per cent and consumer discretionary nearly 2.8 per cent higher as Gildan Activewear Inc. up nearly 15 per cent.
The strong week has been driven by hope, positive jobs numbers and substantial monetary stimulus, said Petursson.
"It's surprising given all these social unrest that's going on in the United States right now that the market seems completely oblivious to it. But we would say the market is resting on an anti-depressant that's been set up by the Federal Reserve."
This report by The Canadian Press was first published June 5, 2020.
Companies in this story: (TSX:SCL, TSX:BTE, TSX:SU, TSX:MFC, TSX:GIL, TSX:GSPTSE, TSX:CADUSD=X)