Canada's S&P/TSX Composite Index Rises 0.4% on Commodity Gains Amid U.S. Inflation Concerns

Canada's S&P/TSX composite index rose 0.4% on April 21, 2023, closing at 21,969.24, driven by gains in commodity-linked shares amid persistent U.S. inflation concerns. The rise in the index was attributed to the strength in commodity sectors, such as energy and materials, as investors remained cautious about the outlook for the U.S. economy and the potential impact of ongoing inflation worries.

The materials group, which includes metal miners and fertilizer companies, led the gains, rising 1.7%, with First Quantum Minerals Ltd. jumping 12.5%. Other top performers in the sector included Ero Copper and Capstone Mining. The energy sector also gained 0.3% as oil prices settled higher due to supply concerns. These two sectors account for roughly one-third of the Toronto market's weighting.

The financial sector, the index's most heavily weighted sector, ended 0.4% higher. However, transportation and logistics company TFI International reported first-quarter results below analysts' estimates, with its shares declining 4.1%.

The rise in commodity-linked shares was attributed to investors seeking inflation hedges as the decline in U.S. inflation appears to have stalled. Investors are focused on the U.S. personal consumption expenditure (PCE) data for March, which is the Federal Reserve's preferred measure of inflation and will impact expectations on the timing of interest rate cuts.

Mike Archibald, a portfolio manager at AGF Investments, noted that the market is "clearly looking for inflation hedges" and has seen a move in commodities. U.S. monthly inflation rose moderately in March, but higher costs for housing and utilities suggested the Federal Reserve could keep interest rates elevated for a while.

Why this matters: The performance of the S&P/TSX composite index and the focus on commodity-linked shares highlight the ongoing concerns about U.S. inflation and its potential impact on the Canadian economy. As investors seek inflation hedges, the strength of commodity sectors may continue to influence the direction of the Canadian stock market.

The Canadian dollar traded at 73.16 cents US compared to 73.05 cents US. On Wall Street, stocks jumped on Friday, with the Dow Jones Industrials, S&P 500, and NASDAQ all posting gains. Alphabet and Microsoft were among the top performers, with Alphabet's shares jumping more than 10% following better-than-expected earnings and the company's announcement of its first-ever dividend and a $70-billion buyback. The major averages are on track for a winning week, with the S&P 500 up 1.6% and the NASDAQ gaining more than 2%.

Key Takeaways

• Canada's S&P/TSX composite index rose 0.4% on April 21, 2023.
• Gains in commodity-linked sectors, such as energy and materials, drove the rise.
• Investors seek inflation hedges as U.S. inflation concerns persist.
• Financial sector rose 0.4%, but TFI International's Q1 results missed estimates.
• U.S. stocks jumped on Friday, led by tech giants like Alphabet and Microsoft.