TSX Hits Record High: Boosted by Jobs Data and Tech Stocks

Key Highlights:

• TSX Composite Index reaches an all-time high, climbing 0.53% to 25,816.05.
• Jobs data from Canada and the U.S. fuel rate cut expectations.
• Tech stocks lead the rally, offsetting concerns over rising unemployment.
• Analysts reassess Toronto-Dominion Bank (TD) amid strategic challenges.

A Record Day for the TSX Composite Index

The Toronto Stock Exchange's S&P/TSX Composite Index surged to a record high on Friday, up 0.53% to 25,816.05, as investors reacted positively to domestic and U.S. jobs data. The report raised expectations for interest rate cuts in both countries, bolstering market sentiment despite mixed economic signals.

Canada’s unemployment rate climbed to 6.8% in November, the highest since January 2017 (excluding pandemic years), even as the economy added a net 50,500 jobs—double the expected 25,000 gain. The rise in unemployment, attributed to more people entering the labor force, increased the likelihood of a 50-basis-point rate cut by the Bank of Canada on December 11.

Tech Stocks Shine Amid Mixed Economic Data

Technology stocks were the standout performers, driving the TSX to new heights. This rally reflects investor optimism for growth-oriented sectors, particularly as lower borrowing costs seem increasingly likely.

However, not all sectors fared equally. Energy stocks faced headwinds as oil prices dropped nearly 1%, with Brent crude at $67.53 per barrel. Meanwhile, gold inched up 0.1% to $2,636 per ounce but remained on track for a second straight week of declines.

TD Bank Under the Microscope

Toronto-Dominion Bank (TSX: TD) was a focal point for analysts following its disappointing Q4 earnings report. Shares fell over 7% on Thursday after the bank posted adjusted EPS of $1.72, below expectations of $1.81. The miss was attributed to rising non-interest expenses, which climbed 11% year-over-year.

Analysts provided mixed reactions:

• RBC Dominion Securities downgraded TD to "sector perform," cutting its target price to $77 from $85.
• Scotiabank also shifted its rating to "sector perform," reducing the price target to $81 from $98, citing uncertainty over the bank's U.S. operations.
• CIBC maintained an "outperformer" rating but lowered its target to $90, highlighting long-term confidence in TD’s growth potential post-2025.

Incoming CEO Raymond Chun faces significant challenges as he navigates regulatory scrutiny in the U.S. while reassessing the bank's overall strategy. Analysts noted that "everything is on the table," from potential asset disposals to operational overhauls.

Analysts’ Stock Upgrades and Downgrades

Here’s a roundup of notable analyst actions:

Canaccord Genuity on TD Bank:

• Maintained a "buy" rating but trimmed the price target to $87 from $89, emphasizing the need for strategic clarity.

National Bank on TD Bank:

• Adjusted its price target to $80 from $85 with a "sector perform" rating, reflecting near-term uncertainties.

BMO on TD Bank:

• Revised its target to $90 from $94, maintaining a "market perform" stance.

Jobs Data Boost Rate Cut Odds

Canada’s labor market data, while mixed, solidified expectations of a significant rate cut. Futures markets now price in a 68% chance of a 50-basis-point reduction, up from 55% prior to the jobs report. Meanwhile, in the U.S., nonfarm payrolls rose by 227,000 in November, exceeding estimates of 214,000, further fueling speculation of a Federal Reserve rate cut later this month.

Global Market Trends

The TSX rally mirrored broader global market movements:

• U.S. Markets: The Dow Jones, S&P 500, and Nasdaq Composite opened higher, buoyed by rate cut optimism.
• European Markets: The STOXX 600 gained 0.4%, while the FTSE 100 remained flat amid merger news in the insurance sector.
• Asian Markets: Chinese tech stocks surged ahead of a key policy meeting, lifting MSCI’s Asia-Pacific Index by 0.2%.

A Market Poised for Growth

Friday’s record-setting performance on the TSX highlights investor confidence in the face of mixed economic signals. While technology stocks led the charge, concerns about rising unemployment and sector-specific challenges like TD Bank’s regulatory woes remain. With rate cut decisions looming, the coming weeks could set the tone for the TSX as it enters 2025. For now, optimism reigns supreme, driven by a blend of strong market momentum and favorable policy expectations.