TSX Hops In To the Easter Holiday With 250 Pts In Gains Over Last Two Days; BMO Capital Markets Says Canadian Small Cap Primed for Catch-Up Trade

Canadian stock pickers marked the last day of this holiday shortened week, month and first quarter leading in to the Easter holiday by hopping to further gains of around 60 points on Thursday. Even if it did lose about 40 points and drop from the 22,200 level over the last hour of today's trade, this still took two successive days of gains to about 250 points. That followed two days of more modest losses earlier this week.

Today, the resources heavy Toronto Stock Exchange was boosted by higher commodity prices and some bullish sentiment around the Canadian economy growing better than expected while the Central Bank here is seen under "no pressing need" to cut interest rates.

Of commodities today, gold futures closed at the second record high in as many days as buying momentum continues even as the dollar and treasury yields rise. Gold for June delivery closed up $25.70 to settle at US$2,238.40 per ounce.

Also, West Texas Intermediate crude oil closed higher following two losing sessions on expectations global inventories will continue to wane through the second quarter on OPEC+ production cuts and Ukrainian attacks on Russian refineries. WTI crude oil for May delivery closed up $1.82 to settle at US$83.17 per barrel, while May Brent crude, the global benchmark, was last seen up $1.35 to US$87.44.

On the economic picture, Derek Holt, Vice-President & Head of Capital Markets Economics at Scotiabank, published a note entitled 'Canadian GDP Spells Reeeebound — And No Pressing Need for Rate Cuts!' In it, Holt noted Canada's economy is rebounding at the fastest pace since 2022 Q2. First quarter economic activity is tracking a rise of 3.5% q/q at a seasonally adjusted and annualized pace. The BoC's January MPR expected only 0.5% q/q SAAR growth in GDP on an expenditure basis and so, Holt said, "it seems likely that we're tracking something that is multiples higher than that".

According to Holt, the Bank of Canada will have to revise growth forecasts higher, and not just for Q1 as governments ramp up spending. On that last point Holt added: "In plain language, this means that while governments feel they have a case for increased spending on myriad things (they always do...), this comes at the expense of higher borrowing costs for longer. Adding to growth slows any progress toward creating disinflationary slack which in turn makes the BoC less comfortable to ease monetary policy."

Among sectors today, most were higher, led by the Battery Metals Index up 3.2% and Base Metals up 1.65%. There were modest losses for Info Tech, Telecom and Industrials.

Of note, BMO Capital Market's Brian Belski has published a note entilted 'Canadian Strategy Snapshot: Canadian Small Cap Primed for Catch-Up Trade'.

BMO believes Canada remains the "predominant contrarian call" in terms of developed equity markets in 2024. Granted, BMO's Belski said, the TSX composite has recently eclipsed all-time price highs, but overall index performance pales in comparison to its neighbour to the south. "From our lens," Belski noted, "Canadian small cap stocks are an even deeper contrarian call within an already contrarian context with respect to overall Canadian equities — an asset class that we believe is primed for a catch-up trade that could even eclipse the large cap stocks."

"In fact," Belski added, "while the S&P/TSX small cap index has managed to keep pace with its large cap peers so far this year, the index remains well off its 2022 historical high. Furthermore, our work suggests the fundamental underpinnings are improving faster than its large cap peers, with earnings growth set to rebound to double digits over the next 12 months, well ahead of the single-digit growth expectations for the overall S&P/TSX composite. As such, we believe investors should be looking within the Canadian small cap universe for both value and growth opportunities with a tilt toward traditional cyclical areas of the market."