S&P 500 (^GSPC) and S&P/TSX Composite Index (^GSPTSE): 1-year comparison
Chief American and Canadian stock indices broke their historic records this week. On Tuesday, the main American index S&P 500 closed at over 5,732 points (up 0.25% for the day, up 20.1% year-to-date) while the main Canadian index S&P/TSX Composite Index ended the day at over 23,952 points (up 0.24% for the day, up 14.3% year-to-date).
The recent Canadian and U.S. interest rate cuts continue to support stock prices. Tuesday’s result was the seventh all-time closing high in the month for the Canadian index while the American one has already posted 41 record highs this year. As a general rule, every year stock indices should be setting higher highs when companies are growing revenues and earnings, as the constant pressure of money from new investors and new pension and insurance funds keep chasing asset prices higher.
On Tuesday, the stocks received additional support from the optimism around new stimulus measures from China that could prop up the world’s second-largest economy. On that day, China announced a set of measures aimed at countering a prolonged downturn in its property market. China’s central bank plans to cut the amount of reserves banks are required to keep. It also reduced interest rates on its loans to commercial banks, lowered required down payments for some property purchases and promised other moves to revive the slowing economy.
The Chinese stimulus package sparked a global stock market rally on Tuesday. However, doubts are already present if the measures would provide a sustainable boost to the Chinese economy which is struggling with deflationary pressures.
At the same time, the expectations of another 50-basis point rate cut from the Federal Reserve, which could happen in November, are a positive factor for stock prices.
In Canada, another rate cut is also on the market radars. Canada’s GDP for the third quarter is expected to be well below the Bank of Canada’s forecasts. This could push the central bank to cut rates even more aggressively, as early as in October.
Michael Zienchuk, MBA, CIM
Investment Advisor, Credential Securities Inc.
Manager, Wealth Strategies Group
Ukrainian Credit Union
416-763-5575 x204
[email protected]
www.ukrainiancu.com
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