Talk of recession pushed back further as two U.S. markets set intraday highs

Although it’s premature to suggest that a recession is totally out of the cards in the next 12 to 18 months, the likelihood has probably been reduced, he said. (Shutterstock photo)

TORONTO — Last month’s prognostications about a possible recession are being pushed aside after a couple of U.S. stock markets set record intraday highs Monday.

Some observers said in late March that an inversion of the yield curve signalled a possible impending recession. That view followed the December equity selloff on fears that the U.S. economy was running out of gas and the global economy was rapidly decelerating.

That sentiment has substantially subsided since economic data was released showing that the U.S. and global economies are doing better than expected, including last week’s 3.2 per cent growth in the U.S. GDP, says Craig Fehr, Canadian markets strategist for Edward Jones.

Although it’s premature to suggest that a recession is totally out of the cards in the next 12 to 18 months, the likelihood has probably been reduced, he said.

“Our view has been that this economic cycle still has gas left in the tank,” Fehr said in an interview, adding that the modest economic growth can continue for a sustained period of time.

“Not only have we seen the expectations for a very near-term recession recede more recently, I would say that the expectations for economic weakness are probably being pushed back certainly outside of 2019 to well into or beyond 2020.”

In New York, the Dow Jones industrial average was up 11.06 points at 26,554.39.

The S&P 500 index closed up 3.15 points at 2,943.03 after hitting a record high of 2,49.52 in earlier trading, while the Nasdaq composite was up 15.45 points at 8,161.85 after reaching 8,176.08 earlier in the session.

The markets were helped by optimism about a heavy week of data releases, including results from bellwether companies including Apple, Alphabet, General Electric, Pfizer and McDonald’s, the April U.S. jobs report on Friday and expectation of continued dovish sentiment being expressed by the Federal Reserve, said Fehr.

About 75 per cent of U.S. earnings so far in the first quarter have exceeded expectations.

In Canada, the S&P/TSX composite index closed down 13.09 points to 16,600.37, off the all-time high of 16,672.71 set last Tuesday.

The materials sector fell by 1.62 per cent as several mining companies lost ground, including Endeavour Mining Corp. which was down 3.9 per cent, and Sherritt International which lost another 25 per cent.

The June gold contract was down US$7.30 at US$1,281.50 an ounce and the July copper contract was up 0.3 of a cent at US$2.90 a pound.

The small health care and technology sectors led the day, rising one and 0.65 per cent respectively, while the heavyweight financial index was up 0.46 per cent.

The Canadian dollar traded at an average of 74.32 cents US compared with an average of 74.29 cents US on Friday.

The energy sector rose as oil prices rebounded slightly from last week’s decreases. The June crude contract was up 20 cents at US$63.50 per barrel and the June natural gas contract was up 1.3 cents at US$2.59 per mmBTU.

Fehr said oil prices are recalibrating because demand is better than expected with the apparent economic stability in China and U.S. gaining traction. Supplies are down because of sanctions on Venezuela and Iran while OPEC isn’t as ready as in the past to fill the gap.

But the constraint on supply won’t last forever, he said.

“With oil prices up this much, you’re going to see new production come on line to capture these higher prices, whether that’s OPEC production or Canadian production or U.S. production. I think that at some point this year we’ll see supply come back and meet those higher prices and that will probably provide some restraint on this upward lift on oil prices.”