Canada's largest stock market looked past lower commodity prices on Tuesday and gained near 45 points. With that the Toronto Stock Exchange took its gains for the last two full days to near 200 points -- largely cancelling out total losses over the last two days of last week. But, of note, the Index did lose near 20 points in the closing moments of trade, dragging it back to the 20,200 level just as it looked set for another go at threatening record all time intraday and closing highs.
Among sectors, Materials gained about 0.25% despite lower gold, while Energy fell 0.3%. Financials edged up as inflation remained a market focus across North America. In the U.S., Action Economics noted, Chair Powell in his testimony was asked a question on inflation and whether the hotter pressures than expected will force the Fed to tighten policy "too soon." He was also asked how much of the current run up in inflation is due to temporary factors. According to AE, Powell said a "pretty substantial part, or perhaps all of the overshoot in inflation has comes from categories directly affected by the reopening of the economy." He cited airline tickets, car prices, etc.
For its part, Wells Fargo Investment Institute on Tuesday published a report entitled 'How stocks have performed when inflation has increased' and its research shows that investments associated with tangible assets may be an option for investors concerned with higher inflation. WFII noted that equities, as a group, have generated impressive returns in periods of rising inflation, with levels that significantly surpassed the impact of inflation.
Since 2000, WFII said, rising inflation typically happened in environments of economic expansion and rising interest rates, a backdrop a lot like what we see now. It added equities outperformed fixed income during these periods -- with the notable exception of Treasury Inflation-Protected Securities. Commodities, including oil and gold, also thrived; commodity values have typically risen as demand has built up and inflation has spiked.
On what it may mean for investors, WFII said: "Overall, we favor equities in the current environment of economic expansion and rising inflation. They offer the potential for both long-term price appreciation and a desirable level of income. We prefer cyclical equity sectors -- we are favorable on Financials, Industrials, Materials, Communication Services, and Energy -- and we are favorable on U.S. Small Cap Equities and Emerging Market Equities."
Of commodities, gold ended lower despite a lower dollar and weaker bond yields following testimony from Federal Reserve chair Jerome Powell to U.S. legislators. Gold for August settled down $5.50 to US$1,777.50 per ounce in Comex trade.
Meanwhile, West Texas Intermediate crude oil ended lower following reports that the OPEC+ group is discussing further production increases beginning in August. WTI crude for July delivery, in its final day as the active contract, settled down $0.60 to US$73.06 per barrel, while August WTI ended down $0.27 to US$72.85, Marketwatch said. August Brent crude, the global benchmark, was last seen down $0.14 to US$74.76 while Western Canada Select was down $0.49 to US$59.42 per barrel.