Toronto market beats its July record as valuable companies move higher

By David Friend, The Canadian Press

TORONTO - After starting the year in a slump and despite a nearly constant stream of warnings about how a slowdown south of the border would dampen investor confidence, Canada's main stock market roared to a new all-time high on Monday.

Market watchers attributed the Toronto stock market's strength to a relative few stocks, rather than a broad-based rally - and that had some cautioning that what's come up in recent weeks will likely go down again in the not-too-distant future.

Monday's surge to a new high for the S&P/TSX composite index, 10 months after the credit crunch took the life out of many investments, was attributed mainly to announcements from two of Canada's most valuable companies.

Research In Motion (TSX: RIM.TO), the maker of the famed BlackBerry, announced a new product and a new alliance with Microsoft Corp. Oil and gas giant EnCana Corp. (TSX: ECA.TO) said in the weekend it would split into two publicly traded companies - a move that some analysts said would make it a more likely takeover target.

The two stocks were heavily traded, with RIM shares up eight per cent and EnCana ahead six per cent. The two companies' combined weight pushed the TSX benchmarket index to end the day at 14,666.07, above a high of 14,625.76 set last July.

Much of the momentum has been caused by strength in resource stocks, which represent about one-third of the market capitalization of the TSX. The energy sector has climbed 40 per cent since January while the price for crude oil rose above US$125.

"The rally has been quite narrow," said Patricia Croft, chief economist at investment company Phillips, Hager and North.

"What you'd like to see as an equity investor is a broadbased rally, in other words all companies are increasing in price, or at least a majority of them."

Croft said that she believes the U.S. economy is in a recession and that it could have further implications for Canada in the future.

"If you look at the strength in the increase in some of the commodities prices it's a little bit of a cautionary note. It does suggest somewhat of a momentum play."

Fred Ketchen, a manager of equity trading at Scotia Capital, said he expects some of the recent gains will disappear in the short term but then recover after that.

He suggested the "natural tendency for this market is to continue this climb, interrupted periodically by a reversal."

"That reversal can be modest or sometimes a little more than modest, but we also seem to recoup and that's not going to change," Ketchen said.

Investors have been turning to commodity stocks as a reliable investment alternative to international financial institutions, whose results have been bruised by the credit crisis.

"People were extremely nervous so they pulled in their horns, and they took their money out of risky investments," said Bob Tebbutt, vice-president risk management at Peregrine Financial Group Canada.

"When people are nervous they automatically flock to things that are real - for example, they flock to gold. It's a risk place that they can put their money in and know that they're theoretically going to get it back fairly easily."