“Buying at regular intervals eliminates the risk of over-investing at a stock market peak” – Quentin Lumsden
TSX, Loonie Rise on Friday After Bank of Canada Rate Increase
The Toronto Stock Exchange’s S&P/TSX composite index closed at 15,174.81 on Friday, a rise of 39.81 points (0.76%) over Thursday’s close, on the back of utility and mining stocks. On the heels of the Bank of Canada Overnight Rate increase this week, the Canadian Dollar rose above 79 cents (USD), up from 76.81 cents at last Friday’s close. Interest rate-sensitive companies experienced losses during the last half of the week on the BoC news.
The BoC acknowledged stronger growth compared to expectations, and they forecast continued growth. In continued efforts to fight off expected inflation, the BoC is generally expected to raise the overnight rate one more time in 2017, and perhaps again in early-2018.
The BoC also hopes to temper the hot Canadian housing markets, particularly in Toronto and Vancouver, as home prices continue to detach themselves from income levels.
A more in-depth analysis of the BoC’s rate increase can be found here.
Dow Jones and S&P 500 Hit Record Highs
A second consecutive month of economic data in the U.S. has dropped expectations of additional rate hikes by the Federal Reserve. In particular, steady consumer prices and decreased retail sales numbers indicate lower-than-expected inflation.
As a result of this data, analysts dropped their expected chance of a December rate hike from 55% down to 48%. Fed Chair Janet Yellen said earlier this week that persistently low inflation could make future rate hikes more gradual.
This news helped buoy S&P 500 to record highs on Friday, and is now trading at 17.3 times forward earnings, above the long-term average of 15 times. The Dow Jones Industrial Average (DJIA) also touched a record high on Friday before dropping to end the day down 0.6%. As expected, U.S. banks experienced drags on their share prices. The NASDAQ rose 40.69 points to close at 6,315.12.
Some heavyweight companies – Bank of America, Goldman Sachs and Morgan Stanley – report their Q2 earnings results next week, and Michael Scanlon, Portfolio Manager at Manulife Asset Management, stated “The bar for earnings is higher this time around, especially after the phenomenal (profit) growth we saw in the first quarter. So companies that miss expectations or guide down will be overly punished”
Links
Bank of Canada Raises Overnight Rate
Sources: Globe Advisor, Fidelity Investments, Thomson Reuters Data