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S&P/TSX breaks seven-day winning streak to end volatile month slightly lower

TORONTO — Canada's main stock index snapped a seven-day winning streak to close a volatile month slightly lower a day before an expected Bank of Canada interest rate hike.
A sign board displays the TSX outside the Richmond Adelaide Centre in the financial district in Toronto on Wednesday, September 29, 2021. THE CANADIAN PRESS/Evan Buhler

TORONTO — Canada's main stock index snapped a seven-day winning streak to close a volatile month slightly lower a day before an expected Bank of Canada interest rate hike.

IG Wealth Management chief investment strategist Philip Petursson described it as a wishy-washy day, with the Toronto market being led by movements south of the border.

He said Tuesday was a day of assessment following last week's strong rally in the U.S.

"I think everyone is trying to gauge whether that is a bear market rally, like a head fake, or if it's something a little bit more sustainable," he said in an interview.

The S&P/TSX composite index closed down 190.06 points to 20,729.34 to end May off about 33 points. It is 2.3 per cent lower year-to-date.

In New York, the Dow Jones industrial average was down 222.84 points at 32,990.12. The S&P 500 index was down 26.09 points at 4,132.15 while the Nasdaq composite was down 49.74 points at 12,081.39. 

The Dow and S&P 500 were nearly flat for the month while the Nasdaq dipped 2.1 per cent. Five months into 2022, the American stock markets are down between 9.2 and 22.8 per cent.

Earlier, Statistics Canada reported that Canada's real gross domestic product grew at an annualized rate of 3.1 per cent in the first quarter, down from an annualized rate of 6.6 per cent in the fourth quarter of 2021.

Although also below expectations, the results were "actually pretty decent" compared with the U.S., which recently reported a decline of 1.4 per cent, said Petursson.

He said the GDP number didn't move the Canadian market or the loonie.

"I think the market is waiting for the Bank of Canada statement and then that will really set the tone for less so the equity markets, but certainly the currency and bond markets in Canada."

Petursson said he's waiting for the central bank to mirror the statement from the U.S. Federal Reserve meeting a few weeks ago that it will raise the interest rate by 50 basis points, followed by another hike before taking a pause.

He said that statement will be important because the market is looking for direction and is waiting for some good news — even if that just means  less hawkish or less bad news.

Energy was the biggest laggard on the day, losing 2.8 per cent as crude prices fell slightly with Imperial Oil decreasing 4.1 per cent and Canadian Natural Energy Ltd. off 3.8 per cent.

The July crude oil contract was down 40 cents from Friday's settled price at US$114.67 per barrel and the July natural gas contract was down 58.2 cents at US$8.15 per mmBTU. 

Petursson said energy fell because markets probably don't believe that crude prices are sustainable at these levels. Crude increased 10 per cent in May and 53 per cent so far this year.

"We're starting to see a little bit of profit-taking ... investors would rather take some profits in energy than speculate that oil prices can continue to climb higher and higher."

The Canadian dollar traded for 79.06 cents US compared with 78.97 cents US on Monday. 

Real estate was the only sector in positive territory while 10 were down. Health care lost 1.6 per cent while technology reversed recent gains to fall 1.5 per cent as shares of Hut 8 Mining Corp. and BlackBerry Ltd. were each down about 8.1 per cent and Shopify Inc. was 2.4 per cent lower.

Materials also fell as metals prices decreased, with Lithium Americas Corp. plunging 14.6 per cent.

The August gold contract was down US$8.90 at US$1,848.40 an ounce and the July copper contract was down nearly 1.1 cents at US$4.30 a pound. 

May was a volatile month with weakness in the first half turning positive in the final week. Buyers returned after valuations dropped to what they consider to be good entry points, said Petursson.

He expects June will continue the trend and move modestly higher.

"I do believe that if we haven't seen the bottom that we're very, very close to it, and the last week will set the tone for the rest of the year, which is a slow grind back to positive."

This report by The Canadian Press was first published May 31, 2022. 


Ross Marowits, The Canadian Press