TORONTO -- Canada's main stock index recovered from early trading weakness Wednesday to move to its highest closing in nearly three months on the strength of the heavyweight financials sector.
It surged for a second straight day, gaining 3.2 per cent with shares of the Royal Bank and Bank of Montreal rising even though both financial institutions reported big drops in quarterly profits due to higher provisioning for loan losses because of the fallout from COVID-19.
"I think investors have largely been unfazed by the provisions that we've seen in the banking results," said Candice Bangsund, portfolio manager for Fiera Capital.
She said investors pushed up sectors midweek that are more tied to the health of the global economy especially since they trade at much more attractive valuations than overbought health care and technology stocks that have led the bear market rally.
"Kind of tells you where expectations are leaning and that is towards a more optimistic scenario for the back half of 2020," she said in an interview.
The S&P/TSX composite index closed up 123.91 points at 15,272.03, the highest level since March 6.
In New York, the Dow Jones industrial average was up 553.16 points at 25,548.27. The S&P 500 index was up 44.36 points at 3,036.13, while the Nasdaq composite was up 72.14 points at 9,217.67.
The Dow and S&P 500 surpassed key thresholds of 25,000 and 3,000 respectively for the first time since March, on optimism about economic reopenings and further easing of the pandemic.
But Bangsund said it will be difficult for the market to maintain the momentum without a viable therapeutic to contain COVID-19 and allow consumers and businesses to resume accelerated spending.
Additional government support from Europe and Japan also fuelled optimism that the global economy can recover at a faster pace than had been expected, she added.
Bangsund said investors also welcomed comments from Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, that a viable vaccine may be available by year-end.
Nonetheless, she said there remains a lot of uncertainty about a vaccine and the possibility of a second wave of infections as the death toll in the United States surpassed 100,000.
The Canadian dollar traded for 72.57 cents US compared with an average of 72.44 cents US on Tuesday.
The energy sector was up even though the July crude contract lost US$1.54 or about 4.4 per cent at US$32.81 per barrel and the July natural gas contract was down 5.9 cents at nearly US$1.89 per mmBTU.
Shares of large Canadian oil producers gained, including Cenovus Energy Inc. up 2.8 per cent and Baytex Energy Corp. up 2.3 per cent.
Oil was on a wild rise Wednesday, losing some ground after Russia said that it wanted to scale back its production cuts as soon as the agreement with OPEC expires in July.
"So this essentially dashed any hope for an extension beyond the June 30 deadline," Bangsund said.
Materials was lower with Barrick Gold Corp. losing 3.4 per cent as the August gold contract was down US$1.40 at US$1,726.80 an ounce and the July copper contract was down 3.65 cents at US$2.38 a pound.
Technology was the big loser on the day, falling 2.2 per cent as Constellation Software Inc., Lightspeed POS Inc. and Shopify Inc. down 4.5, 4.5 and 2.4 per cent respectively.
Overall investor optimism overshadowed brewing tensions between the U.S. and China over Beijing's move to impose Chinese national security laws over Hong Kong.
Secretary of State Mike Pompeo responded by notifying Congress Wednesday that the Trump administration no longer regards Hong Kong as autonomous from mainland China, setting the stage for U.S. to withdraw the former British colony's preferential trade and financial status it has enjoyed since it reverted to Chinese rule 23 years ago.
The political moves have the potential to trigger some market volatility, said Bangsund.
"But right now, the focus for investors is predominantly on the reopening of the economy with very little regard for geopolitical risk or even, the fairly abysmal economic and corporate earnings results that we've been seeing."
This report by The Canadian Press was first published May 27, 2020.