TSX Rebounds After Two Days of Losses; Gold Cos Alamos and Argonaut Shine; Canada GDP Data Awaited

Canada's main stock market, the Toronto Stock Exchange, on Wednesday managed to right itself after two days of losses, closing the day up 195 points and back above the 22,100 level on broad based buying, but with two gold stocks shining.

Whether or not the TSX can keep this run going in to the market holiday on Friday may depend on tomorrow's Real GDP by industry data. Desjardins in a preview from last Friday said it is expected to have advanced by 0.3% m/m in January, slightly less than Statistics Canada's 0.4% flash estimate. Looking ahead to February, Desjardins is projecting a 0.2% advance in real GDP by industry led by goods-producing sectors.

Today, two stocks that helped lift the market here were Alamos Gold AGI — which gained near 7% in Toronto — after the company on Wednesday said it agreed to acquire Argonaut Gold AR — which jumped more than 30% — for shares worth US$325 million to add the recently opened Magino gold mine in Ontario while spinning out Argonaut's other mines in the United States and Mexico. Alamos is offering 0.0185 of its shares and one share in the spin out company for each Argonaut share. Argonaut's two largest shareholders, with a 40% stake, have agreed to tender their shares to the offer, while the board's of both companies have endorsed the deal.

Of commodity prices, gold hit record highs today, while the oil price slipped further. But there was broad based buying with most sectors on the TSX higher, led by Healthcare (+3.9%) and Base Metals (+3%). There were modest losses for Battery Metals and Information Technology.

On the subject of sectors, perhaps of interest to those who like to invest both in Canada and the United States, Scott Wren over at Wells Fargo Investment Institute published a market commentary entitled, "Why Industrials (and Materials)?" In citing his key takeaways, Wren noted the Industrials sector has some of the broadest economically tied global exposure of any of the S&P 500 Index sectors, and many industrial companies will see orders as the beneficiaries of government spending programs.

Wren said, "We currently carry favourable ratings on both the Industrials and Materials sectors. Our strategy has been to trim exposure to Information Technology, Communications Services, and Consumer Discretionary sectors as well believe they represent overvalued segments of the market. With those funds, we suggest investors bring Industrials and Materials, along with the Energy and Health Care sectors, up to our recommended portfolio allocations."

But separately, and representing something of a warning for stock pickers, CIBC Capital Markets said "while history suggests that it is not a good idea to bet against a market flirting with new highs, it may be prudent for equity investors to consider adding some downside protection," especially with the S&P up some 10% year-to-date, and some 30% over the last 12 months.

CIBC noted that contrary to the rates market which has priced out some 75bps of easing since the January FOMC, the equity markets seem undeterred by the Fed's higher-for-longer narrative as the rally extends.

It said the reality is that the inflation trajectory still remains uncertain, with Fed Chair Powell's largest concern being that inflation stabilizes above the 2% target level.

For equities, CIBC thinks the biggest risk centers around what the bond market is not priced for this year: the possibility of one or even no rate cuts (currently near 77bps of easing or three cuts are priced for 2024). It said: "While this is not our base case, there are a handful of avenues for inflation to re-accelerate again, causing the Fed to postpone the well-anticipated easing cycle for even longer. And as we shift into the latter half of the year, market attention will be diverted to the U.S. election which will add another layer of complexity."

"At the same time," CIBC added, "with the Fed leaving rates at restrictive levels for longer, recessionary risks also rise as monetary policy works with a lag. While our base case scenario is still a U.S. soft landing, downside surprises to growth remain a possibility given how aggressive the recent hiking cycle has been."

Of commodities today, West Texas Intermediate (WTI) fell again after the Energy Information Administration said US oil inventories unexpectedly rose last week, but less than an private report released a day earlier reported. WTI crude oil for May delivery closed down $0.27 to settle at US$81.35 per barrel, while May Brent crude, the global benchmark, closed down $0.16 to US$86.09.

But gold closed at a record high, pushing back above US$2,200 even as the dollar strengthened, as buying momentum for the metal continues, backed by expectations lower interest rates are on the horizon. Gold for May delivery closed up $13.50 to settle at US$2,212.70 per ounce, topping the previous record of US$2,206.50 set on March 21.