TORONTO — Investors shrugged of ongoing trade risks to send North American markets higher on Thursday, raising the potential for a larger eventual correction, says an investment expert.
By not pricing in uncertainties, equity markets are becoming inflated and overvalued as trade issues have so far not hurt corporate earnings, said Kash Pashootan, CEO and chief investment officer at First Avenue Investment Counsel Inc.
“What that means is two to three quarters from now, if these trade wars actually hit the bottom line of corporations, they’re going to have a real surprise and selloff because you weren’t pricing it in along the way,” he said in an interview.
“If it was a five-per-cent selloff, it’s not out of the question to see that traditional five-per-cent selloff now be a 10 or 15 per-cent selloff because the market does not price it in at all along the way.”
He said the market is pricing in perfection even though they are late in nearly a 10-year positive cycle.
“A correction this week, next week or next month should not be a surprise to any investors,” Pashootan said.
The S&P/TSX composite index closed up 35.34 points to 16,204.62 after hitting a high of 16,262.84 on 223.8 million shares traded.
The index was led by the energy sector, which rose 1.77 per cent on the back of higher oil prices.
The November crude contract was up 55 cents at US$72.12 per barrel.
Also gaining were the information technology, telecom, consumer discretionary and industrials sectors.
The healthcare sector led on the downside on the back of large decreases by cannabis stocks.
In New York, the Dow Jones industrial average rose 54.65 points to 26,439.93. The S&P 500 index was up 8.03 points to 2,914, while the Nasdaq composite was up 51.60 points to 8,041.97.
The Canadian dollar traded at an average of 76.66 cents US compared with an average of 77.07 cents US Wednesday.
The decrease in the loonie came a day after the Federal Reserve again raised interest rates and signalled that further hikes are likely. The Canadian dollar was hurt because those increases will come at a faster rate than Canada will be able to adopt because of the country’s high debt, said Pashootan.
Uncertainty about NAFTA negotiations is also weighing down the Canadian dollar, he added.
“It’s difficult to see a scenario where NAFTA gets settled and Canada negotiates a better deal than the one that’s in place now.”
The November natural gas contract was up 7.6 cents at US$3.06 per mmBTU.
The December gold contract lost US$11.70 at US$1,187.40 an ounce and the December copper contract was down 4.5 cents at US$2.78 a pound.
Ross Marowits, The Canadian Press