Energy Stocks Stoke the S&P/TSX Composite
After three rather tumultuous months in the equity markets, the frenetic pace in the equity markets cooled from a boil to a simmer during April. Fifteen times during January the Dow Jones Industrial Average had a daily change of 100 points or more from its previous close, compared to just five times during April. World indices were able to gather some traction as no major financial events emerged during the month. It may seem hard to believe but it was just seven weeks ago that the U.S. equity markets plunged after it was announced that Bear Stearns (BSC) would be taken over by JPMorgan (JPM) following liquidity issues. Since that time it has been onwards and upwards for the US equity markets, helped in part by first quarter earnings, which have been on average above expectations. For the month the Dow Jones Industrial Average gained 4.5%, the S&P 500 climbed 4.8%, and the Nasdaq Composite climbed 5.9%. The Federal Open Market Committee decided at its meeting on April 30th to lower the Fed Funds rate by 25 basis points. More important to the market was the tone of the Fed’s statement which seemed to indicate greater concerns about inflation, suggesting it may take a break from its rate reductions.
On the Canadian front the S&P/TSX Composite gained 4.4% during April backed by a large 8.7% gain in the Energy sector, the Composite’s largest sector weighting, as the price of crude knocked on the door of US$120 per barrel amid strikes and geopolitical issues.
Fertilizer related companies soared during the month as fertilizer prices continued to move up. Food prices which have been climbing caused social unrest in various locations around the world, which will undoubtedly make “food for fuel” much more of a political hot potato going forward. By the end of the month fertilizer stocks had retreated but remained positive for the month. On a year-to-date basis the S&P/TSX Composite is positive by 3.9%, one of the few on a global basis, thanks primarily to the Energy and Materials sectors. Combined these two sectors represent 49% of the overall Composite, up from under 44% just one year ago, and 28.5% five years ago.