TORONTO – North American stock markets were in rally mode Monday as traders felt that cool heads will prevail and American politicians can come together to agree on a budget deal by the end of next month.
Without such a deal, the U.S. risks going over a so-called fiscal cliff and into recession as the economy would suffer a severe shock from a combination of automatic spending cuts and the expiration of Bush-era tax cuts.
The S&P/TSX composite index jumped 162.68 points to 12,040.4, while the TSX Venture Exchange gained 14.62 points to 1,249.96.
The Canadian dollar closed up 0.44 of a cent to 100.34 cents US.
U.S. indexes surged with the Dow Jones industrials running up 207.65 points to 12,795.96, the Nasdaq climbed 62.94 points to 2,916.07 and the S&P 500 index was ahead 27.01 points to 1,386.89.
Fiscal cliff concerns started to ease Friday afternoon following a meeting between congressional leaders and U.S. President Barack Obama, with both Republicans and Democrats striking a more conciliatory stance.
And on Sunday, Obama said: “I am confident we can get our fiscal situation dealt with.”
While there is still room for plenty of disappointment in resolving this potential crisis, markets were on the lookout for anything positive out of the negotiations.
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But analysts said more than just reassuring words will be needed.
“Rhetoric only goes so far and so the market will now need to wait,” said Paul Taylor, chief investment officer, BMO Harris Private Banking.
“This is a pretty slow week with U.S. Thanksgiving so it’s more a question of what’s the timeline, how long will it take for the story to be (written) on this current episode on discussions related to the fiscal cliff. If we don’t get it right, that will be very poor for markets.”
Markets finished positive on Friday but prior to that, the TSX had tumbled 3.9 per cent since the election Nov. 6 as a U.S. economic shock would impact economies around the world. A sudden slowing of economic growth would be bad news for a resource heavy market like Toronto, since a lessening of demand for oil and metals would put pressure on mining and energy stocks.
Meanwhile, the Dow industrial average has fallen five per cent as investors worry about higher dividend, capital gains and payroll taxes.
On the TSX, the telecom sector was in focus after BCE Inc. (TSX:BCE) and Astral Media Inc. (TSX:ACM.A) said they are submitting a new acquisition proposal to the CRTC, saying they’ve found ways to address the regulator’s concerns over the level of ownership concentration in some markets. The CRTC recently rejected the original $3.4-billion proposal for Bell Canada’s parent to buy the Montreal-based radio, television and media company. BCE shares gained two cents to $42.01 while Astral shares climbed $1.38 or 3.1 per cent to $45.78.
The tech sector was the leading gainer, up 2.23 per cent as Open Text (TSX:OTC) rose $1.82 to $55.17 while Research In Motion Ltd. (TSX:RIM) climbed 36 cents to $9.59.
The gold sector climbed about two per cent while December bullion gained $19.70 to US$1,734.40 an ounce. Goldcorp Inc. (TSX:G) was ahead 89 cents to C$40.61 while Centerra Gold (TSX:CG) climbed 46 cents to $9.54.
The energy sector was right behind, up 1.77 per cent as oil prices gained ground for a second day on worries that oil supplies could be disrupted if the Israel-Hamas conflict engulfs countries elsewhere in the Middle East, a huge producer of crude.
January oil on the New York Mercantile Exchange was up $2.36 to US$89.28 a barrel. Cenovus Energy (TSX:CVE) improved by 60 cents to C$32.99 while Suncor Energy (TSX:SU) gained $1.05 to $32.59.
The appetite for added risk extended to metals and December copper was eight cents higher to US$3.53 a pound, taking the base metals sector up 1.11 per cent. Taseko Mines (TSX:TKO) added 10 cents to C$2.81 while First Quantum Minerals (TSX:FM) rose 38 cents to $21.36.
All TSX sectors were higher with financials ahead 1.08 per cent. Royal Bank (TSX:RY) was 91 cents higher to $56.53 while Manulife Financial (TSX:MFC) was up 17 cents to $12.10.
The industrials group was up 1.76 per cent while Canadian Pacific Railway (TSX:CP) gained $2.26 to $92.46.
A further indication of a recovering U.S. housing sector also improved sentiment as data showed that sales of previously occupied homes rose solidly 2.1 per cent during October to a seasonally adjusted annual rate of 4.79 million. The sales pace is roughly 11 per cent higher than a year ago. But it remains below the more than 5.5 million that economists consider consistent with a healthy market.
In other corporate developments, the largest shareholder of Agrium Inc. (TSX:AGU) wants to shake up the Canadian fertilizer company’s board by installing its managing partner and four new independent directors, including a former federal agriculture minister. Jana has called on Agrium to spin off its retail arm as a separate company from its fertilizer business in order to unlock shareholder value. Agrium has rejected that idea in the past, dismissed the move Monday as “almost certain to fail” and shares were up $3.20 to $101.01.
Lowe’s Cos. were ahead $1.98 or 6.19 per cent to US$33.96 in New York as it said Monday that its third-quarter net income surged 76 per cent to US$396 million, helped by lower costs and higher revenue, as the company’s efforts to revamp its merchandise and prices appeared to be gaining traction. Its adjusted earnings without charges and its revenue both beat estimates.