The close: TSX at record high but financials pare gains as Liberals propose higher taxes on banks – The Globe and Mail

Canadas benchmark stock index closed at an all-time high Wednesday, with the financials sector ending in positive territory even as banking stocks pulled back from intraday highs as the Liberal Party revealed plans to increase the corporate taxes they pay. Both the S&P 500 and Nasdaq also closed at record highs.

The S&P/TSX Composite Index last closed at a record on Aug. 11. On Wednesday, it finished at 20,587.32, a gain of 39.56 points, or 0.19%. Most sectors posted gains, including a 0.53% rise in financial stocks. The sector, however, had been up around 1% before the Liberals announced plans to target big banks and insurance companies by pledging to raise their corporate tax rate on all earnings over $1-billion and force these same firms to pay a Canada Recovery Dividend.

The party says this would be in recognition of the fast-paced return to profitability that these institutions have experienced in part due to the unprecedented backstop Canadians provided to our economy through emergency support to people and businesses. The party said details of how the dividend would work would be developed over the coming months through consultations involving the Superintendent of Financial Institutions.

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The two measures would bring in at least $2.5-billion in federal tax revenue over four years, according to the party.

The current federal corporate tax rate is 15 per cent. The proposed change would set a new rate of 18 per cent on all bank and insurance company earnings over $1-billion.

Canadian banks are smack in the middle of their earnings season. On Wednesday, Royal Bank of Canada was the third Big 5 lender to report earnings that beat analysts expectations, after Bank of Nova Scotia and Bank of Montreal reported larger quarterly profits on Tuesday. National Bank also reported earnings ahead of Street forecasts on Wednesday. Royal Bank closed up 0.83% but National Bank closed down 0.55%.

Canadas main stock index is expected to rise only marginally by the end of the year, but then extend its record-setting rally in 2022 as global economic expansion underpins growth in corporate earnings, a Reuters poll released Wednesday found.

The median prediction of 26 portfolio managers and strategists polled on Aug. 11-24 was for the S&P/TSX Composite Index to rise 0.4 per cent to 20,550 by the end of 2021, above Mays forecast of 20,050 but shy of this months record high at 20,567.11.

It was then expected to advance to 22,000 by the end of 2022.

We believe that the [economic] cycle has plenty of mileage left, and that over the next 18 months the Canadian economy is expected to continue to grow at an above-trend pace, said Angelo Kourkafas, investment strategy analyst at Edward Jones.

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On Wall Street, chipmakers and financials helped to push the S&P 500 and the Nasdaq to record closing highs as investors look to the upcoming Jackson Hole Symposium for assurances that Federal Reserves timeline for policy tightening remains intact.

With few negative catalysts to sour the risk-on sentiment, all three major U.S. indexes ended the session modestly higher.

Positive news on vaccination approvals, and expectations that the Fed wont shock markets at Jackson Hole, are helping to keep equity prices higher, said David Carter, chief investment officer at Lenox Wealth Advisors in New York, who added its a very quiet market as many investors are sitting on the beach this week.

Rising U.S. Treasury yields boosted rate sensitive financials, and sectors that stand to gain most from economic revival - smallcaps, chips and transports - were outperforming the broader market.

Days after the Food and Drug Administration gave full approval to the Pfizer-BioNTech COVID-19 vaccine, companies and institutions are moving toward either mandated inoculation, or penalization for those who forego the shot.

The Pentagon and Delta Air Lines are the latest to enact such measures, with Ford Motor Co and others potentially following suit.

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The session marked the S&P 500s 51st record high close so far this year.

Analysts polled by Reuters, however, see the stock market staying rangebound for the remainder of 2021, with the S&P 500 ending the year little changed as the pandemic recovery, along with corporate earnings growth, lose steam.

Following a long run, equity indexes have cooled off as the next engine of growth is unclear, Carter at Lenox Wealth Advisors added. Fiscal and monetary stimulus may have lost their oomph to push markets higher still.

Tame economic data, including flat new orders for core capital goods, reinforced the notion that Fed Chairman Jerome Powell is unlikely to hint at a shortened timeline for policy tightening at the virtual Jackson Hole Symposium, due to get underway on Friday.

(The) expectation is that Fed wont scare markets, and will announce only a cautious tapering, Carter said.

The Dow Jones Industrial Average rose 39.24 points, or 0.11%, to 35,405.5, the S&P 500 gained 9.96 points, or 0.22%, to 4,496.19 and the Nasdaq Composite added 22.06 points, or 0.15%, to 15,041.86.

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Financials were the clear winners among 11 major sectors in the S&P 500, gaining more than 1%. Healthcare stocks suffered the largest percentage decline.

Chipmakers Nvidia Corp and Applied Materials rose 1.9% and 1.2%, respectively, and along with mega-cap growth stocks Alphabet Inc, Tesla Inc and Facebook Inc, provided the biggest boost to the Nasdaq.

Nordstrom Inc tumbled 17.6% after the department store operator posted a 6% decline in quarterly revenue from pre-pandemic levels.

Dicks Sporting Goods Inc announced a special dividend and raised its annual sales and profit forecast, sending its shares surging 13.3%.

Advancing issues outnumbered declining ones on the NYSE by a 1.49-to-1 ratio; on Nasdaq, a 1.31-to-1 ratio favored advancers. The S&P 500 posted 63 new 52-week highs and one new low; the Nasdaq Composite recorded 125 new highs and 33 new lows. Volume on U.S. exchanges was 8.29 billion shares, compared with the 9.00 billion average over the last 20 trading days.

Oil prices rose more than 1% on Wednesday, extending gains for a third session, after U.S. government data showed that fuel demand climbed to its highest since the start of the COVID-19 pandemic.

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Brent crude rose $1.20, or 1.7%, to settle at $72.25 a barrel. U.S. West Texas Intermediate (WTI) crude gained 82 cents, or 1.2%, to end at $68.36 a barrel.

Gold retreated 1% on Wednesday, sliding further below the $1,800 level as the dollar ticked higher and investors hoped for a timeline for the tapering of economic support from the U.S. Federal Reserve at this weeks Jackson Hole symposium.

Spot gold was down 0.9% at $1,786.01 per ounce by 10:43 am EDT (1443 GMT), while U.S. gold futures fell 1.1% to $1,788.10.

With files from Reuters and Globe staff

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The close: TSX at record high but financials pare gains as Liberals propose higher taxes on banks - The Globe and Mail