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September 20, 2019

Banks & Oil Carrying TSX to Record Highs

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dylan Callaghan

September 20, 2019

A strong week for Canadian oil and banks has made for big advances in the TSX, closing at a record high on Thursday and continuing its climb Friday morning.

This can be attributed to the fact that oil companies and banks together make up about 50% of our benchmark index in Canada.

If gains occur in both of these industries the result is typically a higher TSX.

Those simultaneous oil and banks gains has been the case, with the S&P/TSX Composite Index closing at an all time high of 16,858 on Thursday. Canadian stocks are definitely reaping the rewards overall.

Fears of War

Attacks on a Saudi oil facility by drones thought to be controlled by Iranian forces have kicked up foreshadowing of war in the Middle East.

Naturally oil reserves would be consumed at a higher rate and demand would increase for the commodity. In the meantime North American energy companies have seen a positive increase due to the uncertainty in the Middle East.

Events in the Middle East involving oil producing nations will have a large impact on the oil market one way or the other so energy investors should be keeping their eyes peeled on the situation.

Still trailing well behind WTI at $58 per barrel, Western Canada Select is now floating around $46 per barrel. Because of this, we have seen jumps in Canadian oil companies like Cenovus Energy (TSX:CVE) and Canadian Natural Resources (TSX:CNQ).

LOOKING AHEAD

US Interest Rate Cuts

Two cuts in the US interest rates could also have a positive effect on our stock market in Canada. The cuts intended to keep economic expansion alive.

Even if The Bank of Canada keeps rates the same, the economic boost in the US could trickle across the border into Canada.

Fears of oil war tends to be a more immediate market response, the longevity of this response unsure. While changes in financial policies can take more time to work their way through the economy but eventually materialize.

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Dylan Callaghan


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