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North American stock markets rally as strong U.S. retail sales offset inflation angst

·4 min read

TORONTO — North American stock markets powered higher Tuesday as strong U.S. economic data including retail sales showed that high inflation isn't restricting spending.

Consumer retail spending increased 0.9 per cent in April, while sales excluding automobiles rose 0.6 per cent. Industrial production climbed 1.1 per cent to also beat expectations.

"Clearly the consumer is in a pretty good spot, despite the fact that inflation continues to take a bite out of people's ability to spend," said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.

Also helping markets was some weakness in the U.S. dollar that supported risk appetite, along with comments from Federal Reserve chairman Jerome Powell and St. Louis Fed president James Bullard, who again suggested that additional 50 basis point hikes are coming in the coming months.

"I think it's cementing what the market already thought. Clearly there's been occasional talking points about the potential for 75 basis points. I think the news that you got from both Bullard and and Powell today would kind of probably take that off the table, at least in the next couple of meetings," Archibald said in an interview.

"And so I think those three things that I mentioned are really resulting in risk coming back into this market."

The S&P/TSX composite index closed up for a third straight session, gaining 284.60 points or 1.4 per cent to 20,491.01.

In New York, the Dow Jones industrial average was up 431.17 points at 32,654.59. The S&P 500 index was up 80.84 points at 4,088.85, while the Nasdaq composite was up 321.73 points or 2.8 per cent at 11,984.52.

Only consumer staples was lower of the 11 major sectors on the TSX, while seven increased by at least one per cent.

The more economically sensitive sectors, including materials, industrials, financials and consumer discretionary were strong in both Canada and the U.S. Defensive areas of the market that have done well of late took a bit of a breather, with telecom essentially flat and consumer staples down a little bit.

"(It's) not uncommon when you see kind of a big bounce in risk appetite for those things to happen," Archibald said.

Health care increased 3.1 per cent while technology, industrials and materials were each about two per cent higher.

Technology rose in a reprieve from recent losses as the impact of upgrades on some U.S. semiconductor names had a ripple effect on longer duration Canadian technology stocks

Shares of Dye & Durham Ltd. were up 22.4 per cent while Hut 8 Mining Corp. was 6.3 per cent higher and Shopify Inc. was up 3.2 per cent.

A strong outlook from United Air Lines supported the entire travel sector, including Air Canada, whose shares climbed more than 4.8 per cent.

Materials gained ground as the weaker greenback helped metals prices with bullion increasing and copper continuing its recent recovery which supported First Quantum Minerals Ltd. rising 7.2 per cent and Teck Resources Ltd. up 5.1 per cent.

The June gold contract was up US$4.90 at US$1,818.90 an ounce and the July copper contract was up 4.75 cents at US$4.24 a pound.

The heavyweight financials sector increased 1.5 per cent with the banks and insurance companies all higher.

Energy gained despite a dip in crude oil prices with Birchcliff Energy Ltd. up 5.3 per cent and Arc Resources Ltd. 4.4 per cent higher.

The June crude contract was down US$1.80 at US$112.40 per barrel and the June natural gas contract was up 34.8 cents at US$8.30 per mmBTU.

Crude prices were marginally affected by the U.S. beginning to ease some energy sanctions against Venezuela.

Archibald said Venezuela won't make a significant difference to global oil supplies but could have a small effect on a daily basis.

"But I continue to think energy is going to remain elevated here and even despite the fact that oil is down about a per cent and a half."

The Canadian dollar traded for 77.92 cents US compared with 77.59 cents US on Monday.

This report by The Canadian Press was first published May 17, 2022.

Companies in this story: (TSX:DND,TSX:HUT, TSX:SHOP, TSX:BIR, TSX:ARX, TSX:AC, TSX:FM, TSX:TECK.B, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press

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