TORONTO — North American stock markets ended a two-day slide with mixed U.S. corporate earnings reinforcing expectations of interest rate cuts.
As the first week of second-quarter results nears a close, companies, including banks, have generally beaten the weak analyst forecasts.
If you dig a little deeper, however, the reports suggest underlying challenges ahead including the impact on banks from a lower interest rate environment, said Kash Pashootan, CEO and chief investment officer at First Avenue Investment Counsel Inc.
"Although we have seen some decent earnings beats, the bar is quite low," he said in an interview.
"What's surprising to us is that with fairly low expectations on earnings numbers, we're still seeing a mixed bag. We think that given the expectations are quite conservative and the bar is quite low, we should see a much rosier picture for the earnings beats."
Pashootan said earnings are the primary driver of markets after investors have grown tired of reading tea leaves on trade negotiations between the U.S. and China, economic data and central banking policy.
Yet, the mixed or disappointing results increase the probabilities of interest rate cuts, which is supporting markets to inch higher, he added.
The S&P/TSX composite index closed up 10.02 points at 16,494.23, after losing 26.61 points over the last two days.
In New York, the Dow Jones industrial average was up 3.12 points at 27,222.97. The S&P 500 index was up 10.69 points at 2,995.11, while the Nasdaq composite was up 22.04 points at 8,207.24.
The Toronto market rose primarily as the strength of the materials sector offset declines in health care and energy.
The August gold contract was up US$4.80 at US$1,428.10 an ounce, the highest level since May 2013.
Interest-rate sensitive commodities like gold are gaining with anticipation of rates going lower.
"The market has really priced in a cut, at least one cut and more to potentially come," said Pashootan.
The September copper contract was down 0.6 of a cent at US$2.71 a pound. Among the gainers were First Majestic Silver, Yamana Gold and Barrick Gold Corp.
The health care sector dropped 2.1 per cent as several cannabis producers suffered share price decreases, including Aurora Cannabis Inc, which fell 6.5 per cent.
Energy was down 1.7 per cent, led by declines from Canadian Natural Resources, Cenovus Energy Inc. and Encana Corp., on weaker crude oil prices.
The September crude contract was down US$1.50 at US$55.42, its lowest level in a month. The August natural gas contract was down 1.7 cents at US$2.29 per mmBTU.
Pashootan says the fundamental price of crude is US$45 to US$47 per barrel, without including a geopolitical risk premium primarily owing to uncertainty in the Middle East.
The Canadian dollar traded for an average of 76.52 cents US compared with an average of 76.61 cents US on Wednesday.
Companies in this story: (TSX:CNW, TSX:CVE, TSX:ECA, TSX:FR, TSX:YRI, TSX:ABX, TSX:ACB, TSX:GSPTSE, TSX:CADUSD=X)