Stimulus Plans Give Traders Hope in Canada’s Frail Stock Market

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(Bloomberg) — Canada’s stock market surged for a second day as investors saw hope that government spending plans will bolster a global economy hit by the coronavirus pandemic.

After a volatile start to trading on Wednesday, the S&P/TSX Composite Index closed 4.5% higher, posting its first back-to-back gains since Feb. 20, the day the market peaked. The rally happened as Justin Trudeau’s government won support in the House of Commons for his stimulus deal and the U.S. Senate moved toward a vote on a $2 trillion package of spending and tax breaks.

The loonie strengthened 1.9% to C$1.4194 per U.S. dollar and the yield on 10-year federal government debt climbed to 0.89%.

“Canadian stocks are surging higher as fiscal stimulus measures across the globe get finalized and as some investors see the light at the end of the pandemic tunnel,” said Ed Moya, a senior market analyst at Oanda Corp. in New York.

Read more: Trudeau Rushes to Deliver Crisis Relief Under New Program

© Bloomberg Canadian stocks post first back-to-back rally since Feb. 20

Still, the rally may not be a lasting one. The economic hit of the coronavirus fallout in North America is only now starting to show.

Last week, 929,000 Canadians applied for unemployment benefits and two new surveys suggested the economic pain is just beginning. The pandemic-induced shutdown of the economy has resulted in job loss or reduced work hours for 44% of Canadian households, the Angus Reid Institute said Wednesday.

The Canadian Federation of Independent Business also reported that small business confidence in Canada collapsed in March to the lowest level on record. The confidence index fell to 30.8, from 60.5 in February, and widespread declines are seen in every province and industry.

And while the benchmark’s winning streak has helped investors recoup some losses from the rout, it’s still far from its Feb. 20 record high.

© Bloomberg Canadian stocks are still far from recouping losses since sell-off began

Even after a 17% rise in the TSX over two sessions, investors should stay cautious, Moya said. “Last week, panic selling seemed to have ended, but if history of past crashes holds true, investors should not be surprised if we see the majority of this two-day rally erased,” Moya said.

For those focused on the long term fundamentals, markets will bounce back eventually, said Alicia Levine, chief strategist at BNY Mellon Investment Management.

“Ultimately the stimulus will support the economy when we get to the other side of this,” she said on BNN Bloomberg. “The reality is that we all understand that all of our societies and economies have to be under lockdown for a while simultaneously to get through it.”

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