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S&P/TSX composite edges higher as crude oil prices rise, U.S. stock markets mixed

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TORONTO — Canada's main stock index gave up early gains but still posted a small increase as crude oil prices hit a more than seven-year high and the central bank kept its key interest rate in check.

The Bank of Canada kept its key interest rate at 0.25 per cent, but warned higher interest rates are coming to help trim inflation from its hottest pace in three decades. 

Despite robust growth in the U.S. economy, an uneven global recovery, supply constraints, inflationary pressures, geopolitical tensions and the Omicron variant could be the reason why it decided not to immediately hike rates as some had forecast, said Ryan Crowther, portfolio manager at Franklin Templeton Canada.

In the United States, the Federal Reserve also kept its interest rate unchanged and signalled hikes and phasing out its monthly bond purchases in March. Bond yields rose with the 10-year U.S. treasuries hitting 1.867 per cent.

North American stock markets started the day strongly, but plunged in the late afternoon following a news conference where Fed chairman Jerome Powell said the central bank has "quite a bit of room" to raise rates before hurting the labour market.

The S&P/TSX composite index closed up 4.91 points to 20,595.89 after being up as much as 342 points or 1.6 per cent.

In New York, the Dow Jones industrial average lost 129.64 points at 34,168.09 after being up more than 500 points. The S&P 500 index closed down 6.52 points at 4,349.93, while the Nasdaq composite finished up 2.82 points at 13,542.12.

Energy, financials and technology were the main drivers of the early rally with tech being notable because it has been the weakest sector so far in 2022, Crowther said.

"For some time now we've had concerns around valuations in growth stocks, especially the ones without strong underlying cash flows, and in Canada many of these would be housed in the technology sector," he said in an interview.

The technology sector, which had led the TSX earlier Wednesday, shed most of its advance to end the day up 0.3 per cent with Shopify Inc. swinging to a loss of 2.5 per cent.

In the U.S., an early catalyst for the tech sector was Microsoft putting up a strong outlook for its cloud business, which fuelled an across-the-board sector rally, Crowther said.

"The big question is still, especially as far as the growth stocks go, is the bulk of the selling over now? Has there been enough valuation compression?" 

Seven of the 11 major sectors on the TSX remained in positive territory, led by consumer discretionary as shares of Aritzia Inc. rose 3.0 per cent and Magna International Inc. increased 2.8 per cent.

Energy remained up on the day because of higher crude oil prices that pushed Suncor Energy Inc. and Whitecap Resources Inc. up 1.4 and 1.1 per cent, respectively.

The March crude oil contract was up US$1.75 at US$87.35 per barrel and the March natural gas contract was up 14.2 cents at US$4.04 per mmBTU. 

West Texas Intermediate reached the highest level since September 2014 while Brent crude futures, the international oil benchmark, topped US$90.

Continuing tensions about Ukraine drove the increases, along with a weekly decline in U.S. inventories.

The Canadian dollar traded for 79.33 cents US compared with 79.18 cents US on Tuesday. 

Health care was the biggest laggard, losing 1.8 per cent while industrials, materials and telecommunications were down on the day. 

The materials sector fell as gold dropped. 

The February gold contract was down US$22.80 at US$1,829.70 an ounce and the March copper contract was up 6.5 cents at US$4.52 a pound. 

Industrials lost ground as Canadian National Railway Co. shares fell 2.8 per cent even though the company posted strong results despite severe flooding in B.C. and gave a strong outlook for 2022 and raised its dividend 19 per cent.

This report by The Canadian Press was first published Jan. 26, 2022. 

Companies in this story: (TSX:CNR, TSX:MG, TSX:SU, TSX:WCP, TSX:SHOP, TSX:ATZ, TSX:GSPTSE, TSX:CADUSD=X) 

Ross Marowits, The Canadian Press