Economic Data, Earnings Have the S&P/TSX Composite Rolling

Find out what happens when you mix solid economic data, stimulative central banks, and solid earnings.

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The Motley Fool

After climbing 4% in the month of July, the S&P/TSX Composite Index (^GSPTSE) kicked off August in a stellar mood.  Today’s gain of 0.86% by the Canadian market however was not an isolated event in the context of global markets.

The U.S. also had a banner day with the S&P 500 eclipsing the 1,700 level for the first time in history (remember where you were) and the Dow Jones Industrial just keeps setting new records.  These indices got the month off to a strong start by climbing 1.25% and 0.83% respectively on the day.

Behind these moves higher was a bevy of strong economic data.  Overnight (here), China’s PMI for July, a measure of manufacturing activity, registered 50.3, which exceeded the estimates of 49.8.  Any number above 50 indicates growth.  Chinese growth is good for the global economy, and global stock markets.

In addition, this morning, the U.S. ISM for July, another indicator of manufacturing activity, came in at 55.4.  This blew away expectations of 52 and creamed June’s 50.9.  The July surge indicated that manufacturing in the U.S. expanded at the fastest rate in 2 years during the month.

And the topper.  The ECB followed the U.S. Fed’s lead from yesterday and indicated that it won’t be putting the brakes on its expansionary monetary policy anytime soon.

Great economic data, stimulative central banks, plus a bevy of solid earnings reports typically combine for an up day in the markets.

Drivers

Two of Canada’s biggest energy firms helped lead the market higher on this fine day.  Suncor (TSX:SU) and Canadian Natural Resources (TSX:CNQ) not only benefitted from the price of oil, which climbed 2.6% higher, but also the news that TransCanada is going to move forward with its Energy East pipeline project.  This will provide Canadian oil with access to the global market for the first time and is much needed if these energy companies are going to expand their production in the coming years.

Holding the Canadian market back on this day however was another big-time energy player.  Imperial Oil (TSX:IMO) shares fell 2.4% after the company posted second quarter earnings that came in below expectations.  A $264 million charge relating to the conversion of the company’s Dartmouth refinery to a fuels terminal weighed on these results.

Also creating a drag were the gold stocks.  But not Barrick Gold.  Barrick somehow managed to please its investors by announcing an $8.7 billion write-down and a dividend cut in its quarterly release.

Meanwhile Yamana (TSX:YRI), which was the worst performer of the bunch, drew the ire of its shareholders by not just maintaining the current dividend but also, not taking a write-down.  Clearly Yamana’s management doesn’t understand the ways of the world (said with tongue firmly planted in cheek).  The stock fell by 6.8% due to lower than expected production growth, and the fact that it was just a bad day for gold (sound familiar?) as the spot commodity fell by about 1%.

Foolish Takeaway

Once again, resource related companies had a significant impact on our market’s performance.  Because of their heavy-weightings in the TSX, these stocks can be harmful for those investors that think they are well-diversified with an index fund or ETF linked to the S&P/TSX Composite Index.

We have prepared a Special FREE Report that will clue you into the perils of passively investing in the Canadian index and suggests an easy to implement alternative strategy.  The report is called “5 Stocks That Should Replace Your Canadian Index Fund”.  One of these 5 is in the process of being taken over at a huge premium.  You can find out who the remaining 4 are simply by clicking here.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

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Fool contributor Iain Butler owns shares in Barrick Gold and Yamana.  The Motley Fool doesn’t own shares in any of the companies mentioned.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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