Rally drives TSX to biggest gain in a month on relief from easing of bond yields

TORONTO — Canada's main stock index posted its best performance in a month on relief from a stabilization of bond yields and further signs of a global economic recovery.

The S&P/TSX composite index closed up 239.36 points to 18,299.62.

In New York, the Dow Jones industrial average gained 603.14 points to 31,535.51. The S&P 500 index was up 90.67 points at 3,901.82, while the Nasdaq composite increased 396.48 points, or three per cent, at 13,588.83.

The solid start to March followed weakness to end February amid rising bond yields over inflation concerns.

The 10-year U.S. Treasury yield stabilized at 1.43 per cent after rates had crept up to a 52-week high of nearly 1.56 per cent.

"I think the markets are finding again some comfort today in the fact that yields aren't just going to move straight higher perpetually," said Craig Fehr, investment strategist at Edward Jones.

"There was some concern among the equity markets that rising rates would potentially undercut the economic recovery and might be a signal that perhaps central banks were going to be doing a little bit less moving forward if indeed inflation was moving higher."

While rates will increase over time, they shouldn't rise as dramatically as the market was concerned about last week, he said.

Fehr added that higher rates is positive because it signals that the economic recovery is becoming more ingrained.

In addition to the stabilization of rates, markets got a boost Monday from higher February manufacturing data in Canada, Japan, Germany and Britain signalling that the global recovery may be gaining some momentum, weekend authorization of the Johnson & Johnson COVID-19 vaccine, and the impending passage by Congress of a large fiscal stimulus package.

"I would look at ... the sizable jump in equity prices today as part of a sigh of relief after the sharp jump in rates last week and partly responding to the favourable economic data that suggests that the recovery is going to continue to get some footing," Fehr said in an interview.

Materials was the lone sector on the TSX to drop lower on Monday. It fell alongside gold prices.

The April gold contract was down US$5.80 at US$1,723 an ounce and the May copper contract was up two cents at US$4.11 a pound.

Health care, industrials, technology and financials led the TSX higher.

Health care gained 2.9 per cent as cannabis producers Cronos Group Inc. rose 5.4 per cent and Canopy Growth Corp. was 4.8 per cent higher.

Industrials got a boost from shares of CAE Inc. surging 12.8 per cent after the flight simulator and training company announced a deal to buy U.S. company L3Harris Technologies' military training business for US$1.05 billion.

WSP Global Inc. increased 8.1 per cent while shares of Air Canada climbed 4.8 per cent after it announced a deal with Chorus Aviation to consolidate all its regional flying that will reduce costs.

BlackBerry Ltd. shares rose 7.1 per cent to help technology, while the heavyweight financials sector was up 1.4 per cent.

Energy was up with Canadian Natural Resources Ltd. gaining four per cent despite lower crude oil prices on a recovery of supply following cold weather disruptions in Texas.

The April crude contract was down 86 cents to US$60.64 per barrel and the April natural gas contract was up less than penny at US$2.78 per mmBTU.

The Canadian dollar traded for 78.98 cents US compared with 78.83 cents US on Friday.

U.S. stock markets outpaced the TSX because of their relative compositions.

However, the gains by cyclical sectors like industrials, financials and energy suggests a more positive fundamental outlook for the TSX longer-term, Fehr said.

After a 70 per cent rise in equity markets over the past year, he said some volatility and periodic pullbacks should be expected, especially as bond yields rise.

"But I think the broader bull market is still very much intact and is going to be driven principally by the economic rebound that I think will gain momentum in the back half of the year as the vaccines become more widely distributed and economic activity starts to resemble some form of its old self."

This report by The Canadian Press was first published March 1, 2021.

Companies in this story: (TSX:BB, TSX:AC, TSX:WSP, TSX:CAE, TSX:CRON, TSX:WEED, TSX:CNQ, TSX:CHR, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press