S&P/TSX composite posts small gain Monday, loonie also higher

TORONTO — Canada's main stock index posted a small gain Monday, helped by strength in energy and industrial stocks.

The S&P/TSX composite index closed up 52.51 points at 22,373.38.

With U.S. stock markets closed for the Memorial Day holiday, things were relatively quiet north of the border since Wall Street has a lot of sway over Bay Street, said Les Stelmach, portfolio manager at Franklin Templeton Canada.

In Canada, this week will bring earnings from major banks after TD kicked off the group last week. The bank reported lower profits for the quarter as it booked costs related to U.S. investigations into its anti-money laundering program.

Investors will be looking for how much money the banks are setting aside for bad loans, said Stelmach.

“I think bank earnings have been resilient through most economic cycles, but there's just a continuing theme about stress on the consumer, higher mortgage rates, rollover of mortgages, as we persist in this higher interest rate environment,” said Stelmach.

“I don’t think you’ll see anything earth-shattering in the quarterly results,” he added.

As has been the case in recent months, markets will be eyeing the banks’ outlooks for the rest of the year, said Stelmach, reflecting ongoing uncertainty after expectations for interest rate cuts have been rapidly dwindling as the year progresses.

“Inflation is still a concern in the U.S. particularly, and so that might keep (the U.S. Federal Reserve) on the sidelines longer than people think,” he said.

Heading into 2024, markets were pricing in about six rate cuts by the Fed this year, said Stelmach, but that's been pared back significantly. Now, many market watchers think it's possible that the central bank could cut just once in 2024, after a string of stronger-than-expected economic data has dampened hopes for lower rates.

In Canada, the economic data is much more supportive of a rate cut, said Stelmach, but the Bank of Canada is in a tough spot because it doesn’t want to diverge too much from the Fed. Diverging too much could affect the Canadian dollar, he said, and put Canada in a difficult position if any economic surprises change the trajectory of rates in the U.S. or elsewhere.

This week will also bring economic reports in the U.S. on consumer confidence, GDP and the Personal Consumption Expenditures (PCE) Index, which Stelmach said is another important indicator of inflation.

“The U.S. economy more broadly has been stronger than people have expected it to be,” he said.

The Canadian dollar traded for 73.34 cents US compared with 73.14 cents US on Friday.

Commodity markets were also closed for the U.S. holiday.

This report by The Canadian Press was first published May 27, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Rosa Saba, The Canadian Press