Investors hope economic data, corporate earnings continue to fuel market rebound

TORONTO – North American stock markets are likely in for more choppy trading, with investors hoping that economic data and this week’s corporate earnings reports will add to last week’s rebound from the recent sell-off.

They will also look to the U.S. Federal Reserve for word about further stimulus and the timing of future interest rate hikes.

There had been speculation during the worst of the correction two weeks ago that the Fed might delay winding up its key stimulus program at the end of this month — its program of buying hundreds of billions of dollars of bonds to keep long-term rates low and, in turn, encourage people to buy equities.

“Given the markets have rebounded somewhat — I think it is premature to say that markets have stabilized — I would say right now that the calls are going to be all across the map,” said Andrew Pyle, senior wealth adviser at ScotiaMcLeod in Peterborough, Ont.

“I think you’re going to get folks thinking the Fed may take a more cautious approach to exiting quantitative easing,” he said. “They might be more dovish in their statement per se, but I think you’re going to have views across the map because of this sharp decline, now that we have a rebound.”

Meanwhile, U.S. economic growth data for the third quarter comes out Thursday and investors are looking for growth to come in at an annualized rate of three per cent. That is down from 4.6 per cent in the April-June period. But the previous two quarters were volatile after severe weather pushed the American economy into contraction in the first quarter, while the strong showing in the second quarter reflected a rebound from very unusual circumstances.

In Canada, gross domestic product for August is expected to come in flat, reflecting a poor showing in the auto sector.

The Toronto stock market just had its best week since late August with a gain of 316 points or 2.2 per cent, leaving it down seven per cent from its highs of early September. The TSX is still up 6.75 per cent year to date.

The Dow industrials gained 425 points or 2.6 per cent last week and the blue chip index is also well off the worst of the retracement, down just 2.75 per cent from its most recent record high Sept. 19.

Meanwhile, traders will have plenty of earnings reports to consider this week.

“Investors in general are looking very closely at the earnings to confirm their hopes that, underneath all the headlines, the fundamentals remain pretty good,” said Bob Gorman, chief portfolio strategist at TD Waterhouse.

Investors will be looking particularly at results from the mining and energy sectors, both heavily weighted groups on the TSX which sustained severe losses during the downturn.

Teck Resources (TSX:TCK.B) reports Wednesday and expectations are very tame, in large part because markets are at the bottom of the commodity cycle.

Teck’s products are essentially copper, zinc and metallurgical coal used to make steel and Gorman pointed out that “those commodities have been flat as a pancake and so the earnings are going to be down.”

He said that Teck handed in 44 cents a share a year ago and he suspects that will be cut to 25 or 26 cent for the most recent quarter.

Gorman said this doesn’t mean to say Teck doesn’t have a lot going for it — it’s just the wrong time of the business cycle.

“The stock has been crushed here — this was over $60 a few years ago and about $18 today, (but has a) solid balance sheet, decent dividend,” he said. “Something like this if you’re patient you will probably do OK with it.”

Gorman is also keeping an eye on Suncor Energy (TSX:SU) and Canadian Oil Sands (TSX:COS). Earnings will be impacted by oil prices, which fell heavily in the quarter.

Gorman notes that Suncor posted earnings of 95 cents a share a year ago and says they will deteriorate to around 80 cents for the most recent quarter.

He sees Canadian Oil Sands posting earnings in the low 40s, down from 51 cents a year ago.

“Not bad and frankly, after the Canadian energy stocks were so beaten up, in my opinion they’re trading at very reasonable multiples here so I remain quite keen about Suncor in particular,” said Gorman.