The S&P/TSX Composite last closed at 35,664.60 on Friday, up 1.48% on a jobs report that lowered the odds of a Bank of Canada hike, and it reopens Tuesday after a Thanksgiving holiday that left Canadian prices a session behind. In that session the S&P 500 slipped 0.06% to 7,807.24, 0.15% below its record close of 7,818.93 set October 6, according to Yahoo Finance data. WTI futures rose 2.1% to $93.74, and the 10-year Treasury yield stood at 5.24%.
The TSX has not yet priced those moves. It also sits 3.5% below its own record of 36,957.60, set August 25, which makes the distance between Canadian and U.S. equities the main question for the week ahead.
A Rally Built on a Jobs Miss
Friday's gain followed Statistics Canada's report of 68,000 lost jobs, which led investors to expect the Bank of Canada to hold rates, according to Trading Economics. Bank stocks and gold miners led the advance, and falling Canadian bond yields helped. The index gained 0.9% on the week, after a Thursday session in which energy producers rose with oil on reports of possible new U.S. strikes against Iran while bank shares declined. The rebound followed the window's sharpest drop, a 1.7% fall on October 7.
The dashed red line marks the index's record close of 36,957.60 on August 25. The index did not trade on Monday, October 12, because of the Thanksgiving holiday, so October 9 is the latest close. The September 16 marker is the Federal Reserve rate increase and the October 9 marker is the Statistics Canada report of 68,000 lost jobs. Source: Yahoo Finance, Trading Economics.
The 20-session range runs from a high of 36,335.60 on September 22 to a low of 35,041.90 on October 7, a spread of 3.7%. The index closed at 35,491.30 on September 16, the day of the Federal Reserve rate increase, and it has not closed above 36,000 since September 22. Friday's close recovered about half of the 3.7% range and left the index in the middle of the window. The comparison with the U.S. market is less flattering. The S&P 500 has gained 3.4% since its September 16 close of 7,551.81, while the TSX has gained 0.5% over the same stretch, according to Yahoo Finance data.
The Holiday Gap Carries Oil and Yields
The Nasdaq Composite fell 0.44% on Monday to 27,245.90, which is 1.3% below its record close of 27,599.79 on October 6. The VIX closed at 15.21. Oil added to Friday's gains as tankers were struck near the Strait of Hormuz over the weekend, according to gCaptain, and WTI rose from $91.85 to $93.74. The 10-year yield sits at 5.24% against a peak of 5.31% on October 5.
A rise in oil of that size tends to show up first in energy shares. The iShares S&P/TSX Capped Energy ETF closed at $29.40 on Friday and has gained 63% over the past year, according to Yahoo Finance data. Canadian energy names have a session of oil to price at the open.
Dispersion Explains the Distance to the Record
The TSX trails its record because its sectors are moving apart. The financials ETF closed Friday at $90.37, 8.0% below its July 15 high of $98.18, and gold futures at $4,190.60 on Monday sit 21.2% below their January 29 high of $5,318.40. Gold rose 1.4% on Friday to $4,216.30 before slipping on Monday, so the metal's recovery has been partial. Energy has done the work that the rest of the index has not, which leaves the TSX more exposed than the U.S. market to a drop in oil if the Strait of Hormuz reopens.
The next two dates are September CPI on October 19, according to Dominion Lending Centres chief economist Sherry Cooper, and the Bank of Canada and Federal Reserve decisions on October 28. The Canadian market enters both with a smaller cushion to its record than the U.S. market has, and with the Monday oil and yield moves still to absorb.