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Thursday, August 26, 2010

TSX Up On Great Financials

The Toronto stock market put in a strong advance Wednesday, led by higher financials after CIBC delivered earnings that beat expectations.

The S&P/TSX composite index came back from negative territory to close up 90.77 points to 11,648.12. The TSX Venture Exchange gained 5.93 points to 1,462.78.

The Canadian dollar was down 0.04 of a cent to 94.27 cents (U.S.).

CIBC shares moved ahead $3.27 or 4.89 per cent to $70.08 after the bank reported that net income rose to $640 million in the fiscal third quarter, up from $434 million a year ago, as revenue held steady and the bank took fewer provisions for credit losses.

Excluding one-time items, the bank’s earnings were equal to $1.66 per share, beating consensus analyst expectations of $1.53 per share, according to Thomson Reuters.

Overall, the sector advanced just over one per cent. It had retreated Tuesday after Bank of Montreal handed in earnings that missed expectations.

On Wednesday, BMO rose 84 cents to $56.34 after falling about six per cent the previous day.

Royal Bank gained 60 cents to $50.69 a day before the country’s biggest bank — and the most heavily-weighted stock on the TSX — delivers its quarterly earnings. National Bank also reports Thursday and its shares gained 12 cents to $55.65.

However, some analysts warned that the banks could be in for more selling pressure as worsening economic conditions hurts results.

“The banks have done a very good job of hanging in and trading pretty well over the last year and a half,” said Paul Thornton of Investor Boot Camp Online.

“And I think their time has run out. The Canadian real estate market has finally peaked and I think that is taking the bloom off the rose of the banks, along with the belief that the global recovery is threatened.”

The gold sector was also a strong advancer as bullion moved higher with the December contract on the New York Mercantile Exchange ahead $7.90 to $1,241.30 (U.S.) an ounce. Goldcorp Inc. was up $1.57 to $44.60 and Barrick Gold Corp. improved by $1.51 to $47.96.

Base metal stocks also turned higher even as economic worries continued to punish copper prices. The September contract on the Nymex closed down three cents to $3.21 (U.S.) a pound. Teck Resources climbed 78 cents to $33.73 while Taseko Mines gained 19 cents to $4.54.

Energy stocks were slightly higher as oil prices bounced off earlier lows that came in the wake of data from the Energy Information Administration showing higher crude and gasoline inventories in the U.S. The energy sector declined as the October contract in New York gained 89 cents to $72.52 (U.S.). Canadian Natural Resources rose 21 cents to $33.12.

The telecom sector was the major decliner, down 1.36 per cent with Rogers Communications off 95 cents to $37.06 after TD Bank analyst Vince Valentini reduced his rating on Rogers to “hold” from “action list buy.”

BCE Inc. lost 51 cents to $32.77.

Stocks had been lower for most of the session after disappointing U.S. consumer and housing data deepened worries that the American economy could fall back into recession.

The U.S. Commerce Department reported that orders to factories for big-ticket manufactured goods rose 0.3 per cent last month, well below the 2.8 per cent gain that had been expected. Without the volatile transportation sector, orders actually dropped 3.8 per cent.

The Commerce Department also reported that sales of new homes fell 12.4 per cent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600, lower than the 333,000 sales that economists expected. Also, June sales were revised down to 315,000 from 330,000.

Economists had been expecting home sales to fall with the expiration of special tax incentives brought in by the U.S. government to stimulate the economy. However, the dropoff has been bigger than anticipated.

The fear among investors is that if the economy continues to worsen, corporate earnings will start to weaken, just as economic indicators have.

“The worry is, if the economy looks worse, maybe companies start ratcheting down” their earnings forecasts, said Russell Croft, portfolio manager at Croft Leominster Investment Management in New York.

“It’s still a very uncertain time.”

Gains on New York markets were much more muted in the wake of the economic reports as the Dow Jones industrial average gained 19.61 points to 10,060.06.

The Nasdaq composite climbed 17.78 points to 2,141.54 while the S&P 500 index was 3.46 points higher to 1,055.33.

In other news, BHP Billiton Ltd., the world’s biggest miner, said Wednesday its full-year earnings more than doubled to $12.7 billion (U.S.) as the company slashed its debt and enjoyed record demand for iron ore.

Last week, BHP launched a hostile $38.5-billion (U.S.) takeover offer for Canadian fertilizer company Potash Corp. of Saskatchewan Inc. On Monday, PotashCorp said its board voted unanimously to reject the bid. BHP Billiton’s chief executive said Wednesday that PotashCorp would fit well within the diversified mining company’s global strategy but adds that BHP is prepared to abandon its takeover bid if necessary. BHP shares were ahead 18 cents to $65.60 in New York while PotashCorp shares declined $3.29 to $154.51 on the TSX.

Shares in Research In Motion rose 76 cents to $50.70 after the BlackBerry maker confirmed it has acquired California-based Cellmania, which produces software to manage virtual application stores and their content. Financial terms were not disclosed.