The S&P/TSX Composite rose 0.50%, or 179.33 points, to 36,107.96 on Tuesday, recovering about 72% of the 0.69% loss on Monday and finishing 0.19% below its October 16 close of 36,176.55. The index sits 0.63% under its September 22 close of 36,335.61, the highest in the past five weeks of closes.
The move came with US Treasury yields easing, oil reversing late and gold slipping. The 10-year Treasury yield fell 3 basis points to 5.12%, WTI for December delivery fell 0.26% to $98.28, and gold dropped 0.42% to about $4,143 an ounce, according to Capp Notes.
Banks and Pipelines Led, Miners Gave Back
Financials did most of the lifting. Trading Economics reported RBC up 1%, TD up 1.2%, Scotiabank up 0.9% and CIBC up 0.9%. Pipeline operators followed, with Enbridge up 1.1% and TC Energy up 1.3%. Constellation Software gained 2.6% and Shopify 1%.
Gold miners were the drag. Agnico Eagle and Wheaton Precious Metals each fell 1%, tracking the slide in bullion. Cenovus dipped 0.5% while crude held near $98, so the producers did not share in the pipeline gains.
The rotation fits a rate story more than an oil story. Lower Treasury yields lifted rate-sensitive groups in the United States, and leadership from Canadian banks and pipelines fits the same pattern.
Why Banks Trade the Oil Price Right Now
Trading Economics noted that bank stocks had been pressured when the oil rally pushed inflation worries higher, and recovered when that rally lost momentum. The link runs through the Bank of Canada: higher oil raises headline inflation, which raises hike odds, which lifts bond yields and weighs on credit-sensitive sectors.
September inflation of 3.1% came in below the 3.2% forecast, but traders still raised bets on a rate increase, according to Trading Economics. Reuters reported on October 19 that money markets expect a hold on October 28 and a 25 basis point increase in December. Governor Tiff Macklem said on October 16 that the longer energy prices stay elevated, the harder the situation becomes.
The daily closes show how sensitive the index has been to that chain. The TSX rose 1.48% on October 9 after Canada lost 68,000 jobs, because weaker data cut hike odds, and fell 0.69% on October 19 as hike pricing rose.
October 12 was a market holiday for Thanksgiving, so October 13 follows October 9. The dashed line is the average of the latest five closes.
The US Backdrop Was Broader Than the Headline
The Dow rose 1.02% to 52,495.88, a gain of 529.85 points, and the S&P 500 gained 0.28% to 7,712.57. The Nasdaq Composite slipped 0.02% to 26,424.82 and the Russell 2000 led with a 1.65% gain, according to Capp Notes. The Cboe Volatility Index fell 6.13% to 17.31.
Brent for December delivery closed at $108.79, down 0.69%, after reversing from a $111.99 high. The Canadian dollar closed at 0.7096 US, up 0.13%, per PoundSterlingLive.
What the Next Eight Sessions Test
Three events cluster in the coming week. Results on the nine remaining Alberta referendum questions are due Wednesday, the Federal Open Market Committee meets October 27 and 28, and the Bank of Canada decides on October 28 with the overnight rate at 2.25%.
With the TSX 0.63% below its window high and the 10-year Treasury yield above 5%, the market is pricing the next move in rates rather than a break in earnings. The base case is range trading until the October 28 decision resets hike pricing, with closes since September 15 spanning 35,042 to 36,336.