S&P/TSX composite up despite plunge in oil prices for second Monday in a row

S&P/TSX composite up despite plunge in oil prices for second Monday in a row

TORONTO — Canada’s main stock index started the trading week higher even though the price of oil futures plunged for a second consecutive Monday.

After moving to a historic negative price last week, the crude oil contract dropped nearly 25 per cent on renewed storage concerns amid a supply glut and demand weakened by the COVID-19 pandemic.

“I think oil prices are likely to remain under a fair bit of pressure until one of those two sides of the ledger changes dramatically, either until supply comes down dramatically to fall more in line with demand … or conversely, some additional storage that comes online or demand that picks back up,” said Craig Fehr, investment strategist at Edward Jones.

He said it won’t be known for a few weeks if the June contract will move deeply into negative territory just as May’s contract did a day before its expiry.

“If indeed we’re in a scenario by which there’s no more additional clarity on the uptick in potential demand or no meaningful change in supply or production, we could find ourselves back in a scenario like that, however, several weeks could make a meaningful difference in terms of the outlook for a rebound in the economy,” he said.

The June crude contract was down US$4.16 or 24.6 per cent at US$12.78 per barrel and the June natural gas contract was up 2.1 cents at nearly US$1.92 per mmBTU.

The S&P/TSX composite index closed up 221.75 points or 1.5 per cent at 14,642.11 for the highest closing in nearly seven weeks.

In New York, the Dow Jones industrial average was up 358.51 points at 24,133.78. The S&P 500 index was up 41.74 points at 2,878.48, while the Nasdaq composite was up 95.64 points at 8,730.16.

The primary catalyst for markets moving higher was the start of economic reopenings in several U.S. states.

“I think that’s providing some continued optimism to the market that economic activity is going to start to resume hopefully sooner than later,” Fehr said.

He expects reopenings will likely proceed in “fits and starts” and won’t be completely smooth.

“After declining sharply amid the uncertainty of this virus situation, I think markets are now responding a little bit more positively to the fact that there seems to be a little bit of light at the end of the tunnel.”

The Canadian dollar traded for 71.16 cents US compared with an average of 70.97 cents US on Friday.

Eight of the 11 major sectors on the TSX were higher, led by health care, real estate, utilities and financials.

Health care gained 7.5 per cent with Canopy Growth Corp. and Hexo Corp. rising about 12 per cent.

The heavyweight financials sector was up three per cent with Fairfax Financial Holdings Ltd. up 9.7 per cent and Canada’s largest banks rising between 2.1 to 4.7 per cent.

The energy sector was slightly positive despite the lower crude oil prices. Frontera Energy Corp. shares were up almost 2.5 per cent and Imperial Oil rose 2.05 per cent, while Secure Energy Services Inc. was down 4.5 per cent.

Fehr said that’s because much of the sector’s challenges have already been priced in and large cap names are better positioned to weather the challenge of low prices.

“The underperformance that we’ve seen in the energy sector for an extended period of time now has been pricing in this expectation that there was a lot of pain that still lay ahead for that sector,” he said.

“So the fact that we’re now starting to see energy names at least stabilize or even do a little bit better, even when crude prices are falling, I think is an indication that some pretty negative expectations are already priced into these stocks.”

Materials, technology and consumer staples were lower.

Materials fell slightly with a dip in gold prices.

The June gold contract was down US$11.80 at US$1,723.80 an ounce and the May copper contract was up 1.3 cents at US$2.35 a pound.

This report by The Canadian Press was first published April 27, 2020.

Companies in this story: (TSX:WEED. TSX:HEXO, TSX:IMO, TSX:FEC, TSX:SES, TSX:FFH, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press

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