The S&P/TSX composite closed at 35,983.98 on October 13, up 319.36 points or 0.90%, in its first session after the Thanksgiving holiday, and the implication is that the rebound is real but narrow: the Capped Energy index rose 3.91% and Capped Financials rose 1.35%, while 554 issues fell against 426 that rose.
An index that rises while more stocks fall is being carried by its heaviest sectors. Financials and energy are two of the largest weights in the composite, so a strong day in both can lift the index while the median stock stays flat or lower. The S&P 500 slipped 1.79 points to 7,805.45 and the Nasdaq composite fell 41.52 points to 27,204.38, so Toronto outperformed on a day Wall Street did not move.
A Month-Long Round Trip in the Index
The composite fell 3.6% from its September 22 close to its October 7 close and has since recovered 2.7%, which leaves it only 0.8% above where it stood on September 14.
The index peaked at 36,335.61 on September 22, fell 3.6% to the October 7 close of 35,041.86 and gained 1.5% on October 9, the day of the September jobs report, with no session on October 12 for Thanksgiving. Source: YCharts, TMX Money.
What Led the Rebound: Energy Services and Banks
Energy leadership was concentrated in energy services. Enerflex gained 14.16% to a record 39.11 and CES Energy Solutions rose 5.08% to 20.06. Brent closed 0.90% lower at 105.69 and the November WTI contract rose 40 cents to US$94.14, so the 3.91% move in the energy index priced the persistence of high oil more than a one-day jump in crude. That fits the tanker attacks near the Strait of Hormuz, which have kept Brent above $95 on every close since mid-September.
Financials gained 1.35% as the Bank of Canada decision on October 28 approaches with the overnight rate at 2.25%. Aritzia jumped more than 20% after fiscal second-quarter revenue rose about 44% and the company raised its full-year revenue outlook, which made it the best performer on the exchange that day.
The laggards sat in gold and industrial names. Wesdome Gold Mines fell 9.01%, Hammond Power Solutions fell 7.96% and Americas Gold and Silver fell 7.72% on a day December gold slipped US$13.30 to US$4,177.30 an ounce.
Breadth, Jobs and the Canadian Dollar
Of 1,030 issues traded, 426 advanced, 554 declined and 50 were unchanged. A 0.90% index gain with 41% of issues advancing is the pattern of a sector-led rally and not of a broad return of risk appetite. Volume was 297,983,076 shares, according to TMX Group.
The macro backdrop has not eased. Canada lost 68,300 jobs in September, headline inflation is expected to hold at 3.0% when the September consumer price index arrives on October 19, and the Bank of Canada decides on October 28. The Canadian dollar traded at 70.31 US cents, up from 70.07 cents on Friday.
Base Case and the Levels That Matter
HDQ treats a range with sector rotation as the base case. Across 21 sessions the index closed between 35,041.86 and 36,335.61, a 3.7% band, and the latest close is 1.0% below the top and 2.6% above the bottom. The 52-week intraday high of 37,069.11, set on August 26, is 2.9% away.
The risk case is the October 7 session, when the index lost 607.65 points in a day on weakness in basic materials. If energy leadership reverses on a Hormuz deal while financials stall, the index loses both of its supports at once. The September CPI on October 19 and the Bank of Canada decision on October 28 are the next dated tests, with tanker headlines as the undated one.