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Energy sector helps lift S&P/TSX composite, U.S. stock markets end the day higher

A signboard displays the TSX close in Toronto, Friday, June 4, 2021. THE CANADIAN PRESS/Frank Gunn. FNG

Gains in the energy sector helped Canada’s main stock index end the trading day in the green, while U.S. stock markets also closed higher, a day after posting their worse session since June 2020.

The S&P/TSX composite index was up 80.74 points, closing the trading day at 19,726.14.

In New York, the Dow Jones industrial average was up 30.12 points at 31,135.09. The S&P 500 index ended the trading day up 13.32 points at 3,946.01, while the Nasdaq composite closed up 86.11 points at 11,719.68.

The energy sector was up more than three per cent, with stocks like Suncor Energy Inc., Canadian Natural Resources Ltd., Cenovus Energy Inc., and Crescent Point Energy Corp. all making positive moves.

Read more: North American markets tumble, with U.S. stocks posting worst drop since June 2020

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“Energy is looking like a really good hiding spot,” said Greg Taylor, chief investment officer at Purpose Investments.

“We really like the energy stocks. These companies have spent so much time cutting their expenses and operating in a really lean environment, and now that we’ve got energy prices — both oil and natural gas — up, they’re really generating a lot of cash flow.”

And what these companies are doing with they’re gains is giving them back to shareholders in the form of dividends and buybacks, Taylor said.

“When you look at some shakiness in other sectors, the energy sector is really standing out as a nice, bright spot.”

The October crude contract was up US$1.17 at US$88.48 per barrel Wednesday and the October natural gas contract was up 83 cents at US$9.11 per mmBTU.

After a wild Tuesday on the markets, Taylor warns of further volatility ahead of the U.S. Federal Reserve’s interest rate decision next week.

“Last week was kind of an anomaly coming out of Labour Day, and I think people got complacent, and then yesterday with the U.S. CPI number coming in, I think it was kind of a sudden dose of reality for investors that the Fed isn’t going to go away,” he said.

“I think now you’ve got people more on an uncertain footing.”

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While economists are still largely expecting a three-quarter percentage point increase, a full percentage point is becoming a greater possibility.

“If 100 came, I think you’d see a big move in bond yields and a big move in the U.S. dollar, and both of those would add up to probably a bit of a shock to the equity markets,” Taylor said.

Aside from where interest rates go next week, Taylor explained that the biggest risk for markets is around upcoming earnings season starting in October.

Company results and forecasts could potentially send markets dropping beyond the lows we saw in June.

“Coming into the year, market multiples were a little elevated and they’ve pulled back to more of an average level. But what we haven’t really seen is anyone cut earnings, and if people start to fear that there’s a recession or that companies can’t pass along price increases and they start taking down their earnings estimates, then that combined with the already discounted multiples could lead to a (deeper) drop,” he said.

Eyes will be on the cryptocurrency market tomorrow with the Ethereum merge to an environmentally-friendly network set to take place tonight.

“That could be a big event for crypto because if it goes well, I think this could be a new advance with more cryptos becoming environmentally-friendly and a little more efficient. So, it could be good at bringing more investors into the space,” Taylor said.

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“Contrary to that, if it doesn’t work, then we’ve got a lot more second guessing. And people will take another look at their crypto assets.”

The Canadian dollar traded for 75.95 cents US compared with 76.28 cents US on Tuesday.

The December gold contract was down US$8.30 at US$1,709.10 an ounce and the December copper contract was down about four cents at US$3.52 a pound.

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