North American bounce back following additional intervention from U.S. Fed

TORONTO — North American stock markets bounced back Monday from early pandemic-induced anxieties following a further intervention from the Federal Reserve.

The U.S. central bank announced it would begin purchasing corporate bonds as part of its plan to ensure companies can borrow through the bond market during the COVID-19 pandemic.

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Markets rallied around yet another example of the Fed's commitment to ensure there's ample stability and liquidity in the financial system to support the economic recovery, said Craig Fehr, investment strategist, Edward Jones.

"It's also part of their approach, which is to leave no doubt in the financial markets' minds that they are committed to doing whatever it takes to support the economy and the financial markets," he said in an interview.

While Monday's move wasn't widely expected, Fehr said it's not surprising given the unprecedented steps it has already taken.

The S&P/TSX composite index closed up 103.09 points at 15,359.66 after dipping to a low of 14,934.71.

In New York, the Dow Jones industrial average gained 157.62 points at 25,763.16. The S&P 500 index was up 25.28 points at 3,066.59, while the Nasdaq composite rose 137.21 points at 9,726.02.

Stock markets staged strong comebacks after being initially worried about a second wave of infections due to rising infections in some U.S. states and in China.

The economic recovery in Canada and the United States will be sustainable but "a little more lumpy" than what markets priced in when they rallied more than 40 per cent off their March lows, said Fehr.

"Last week was really a re-emergence of that volatility as the realization that it wasn't going to be as smooth as perhaps hoped," he said.

The Fed helped reignite some optimism, said Fehr.

"The Fed does not have a cure for this pandemic. They have implemented a lot of strategies as a way to provide a cure to the financial markets to get to the other side of this pandemic."

Shopify Inc. was the strongest performer on the day, gaining 8.3 per cent after the Ottawa-based e-commerce giant announced a partnership with Walmart that allows U.S. merchants to sell their products on the retailer's website.

That helped the technology sector to gain 1.8 per cent, trailing only materials and utilities.

Materials moved higher even though gold prices dropped, along with other safe-haven assets like the U.S. dollar.

The August gold contract was down US$10.10 at US$1,727.20 an ounce and the July copper contract was down 3.3 cents at nearly US$2.57 a pound.

The Canadian dollar traded for 73.51 cents US compared with 73.55 cents US on Friday.

"When we look at sector performance today, it's reflecting the increased optimism. So we're seeing the cyclical sectors that have gained momentum here in the second half of the day," said Fehr.

Despite higher crude oil prices, the energy sector fell as shares of Shawcor Ltd. plunged 11.1 per cent.

The July crude contract was up 86 cents at US$37.12 per barrel and the July natural gas contract was down 6.2 cents at nearly US$1.67 per mmBTU.

The heavyweight financials sector dipped with Laurentian Bank shares losing 1.5 per cent following the surprise retirement of its chief executive.

Industrials was also lower with shares of Bombardier Inc. losing 11.5 per cent after news it will be removed from the TSX Composite Index after this week. Air Canada shares decreased 4.4 per cent.

Despite Monday's gains, Fehr said market volatility will re-emerge as investors continue to worry about what a second wave of infections mean for the economy.

"I don't think it's a foregone conclusion that we have to go back and re-test those lows of March ... but it's going to be a choppier ride higher in my opinion from here than we've seen over the past couple months."

This report by The Canadian Press was first published June 15, 2020.

Companies in this story: (TSX:SHOP, TSX:AC, TSX:BBD.B, TSX:LB, TSX:SCL, TSX:GSPTSE, TSX:CADUSD=X)

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