Canadian Markets Rebound on Renewed Rate Cut Optimism
In a significant turnaround, Canada's primary stock index staged a robust recovery on Friday, November 21, erasing a substantial portion of its weekly losses. The rally was primarily fueled by a surge in financial and technology shares, driven by growing investor confidence that the U.S. Federal Reserve might implement an interest rate cut as early as December.
Sectoral Surge and Key Performers
The S&P/TSX composite index concluded the trading session with a substantial gain of 254.10 points, or 0.9%, settling at 30,160.65. Despite this strong single-day performance, the index still recorded a weekly decline of 0.5%. This positive momentum mirrored a similar rally on Wall Street, which was triggered by comments from New York Fed President John Williams. He indicated that the central bank could still lower interest rates "in the near term" without jeopardizing its inflation targets. Consequently, market participants now perceive a roughly 60% probability of a Fed rate cut next month, a sharp increase from just 20% prior to the release of recent U.S. jobs data.
Portfolio manager Ian Chong of First Avenue Investment Counsel Inc. noted that macroeconomic sentiments regarding the Fed's potential actions are currently overshadowing what has been a period of very strong corporate earnings. He added that value investors are likely to re-enter the market, particularly targeting high-quality companies, given the robust Q3 corporate earnings reports.
Technology and Financials Lead the Charge
The technology sector, which had recently faced pressure due to concerns over massive artificial intelligence-related expenditures, rebounded strongly, posting a 1.3% gain. This surge was bolstered by a 2.1% increase in shares of e-commerce giant Shopify Inc.. In a significant development supporting the tech and energy sectors, the United Arab Emirates announced a framework to invest up to $50 billion in Canada, with projects earmarked for artificial intelligence, energy, and mining.
Similarly, the financials sector posted a solid 1.3% advance. The materials group, which encompasses metal miners, also climbed 1.1%, supported by rising copper prices. The consumer discretionary sector was another standout, adding 2.4%.
A major individual stock mover was Magna International Inc., whose shares jumped an impressive 5.6%. This surge followed an announcement by the company and China's Guangzhou Automobile Group that the electric AION V model will be manufactured at a Magna facility located in Austria.
Contrary to the broad market upswing, the energy sector was the sole loser among the ten major sectors, dipping 0.8% as oil prices fell 1.6% to settle at $58.06 a barrel.
