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TSX Back To Pre-Recession Levels, But Is It Too Much?

The Toronto stock exchange closed Monday at levels it hasn't seen since before the financial crisis of 2008-2009.

The S&P/TSX closed at 14,871.21, not quite an all-time high but close to the record set in the spring of 2008. It has risen 9 per cent so far in 2014 and has been one of the strongest-performing major stock markets in the world this year.

"The valuations are extended. We're at a point where I would be a bit nervous on the TSX side of things," Sadiq Adatia, chief investment officer at Sun Life Global Investments, told Reuters.

Gains on the TSX today and for much of the year were driven by higher commodity prices. The energy and gold sectors were up on the TSX as July crude in New York climbed $1.75 to US$104.41 a barrel. August bullion gained $1.40 to US$1,253.90 an ounce, while July copper fell a penny to US$3.04 a pound.

On Wall Street, U.S. markets had been expected to come down slightly after touching record highs last week. Instead, the Dow Jones industrials advanced 18.82 points to 16,943.10 and the Nasdaq rose 14.84 points to 4,336.24. The S&P 500 index was ahead by 1.83 points to 1,951.27.

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China reported on Sunday that export growth accelerated in May although there was a dip in imports.

The world's second-largest economy said exports rose seven per cent in dollar terms, up from a 0.9 per cent increase in April and rather large slumps in February and March. Imports declined 1.6 per cent in May after inching up 0.8 per cent in April. Private sector analysts say the Chinese economy will likely slow as the impact of mini-stimulus efforts fade.

The data came as traders continued to digest a move last week by the European Central Bank to deal with the threat of deflation and give some lift to a tepid economic recovery in the eurozone. The ECB has announced that it will be cutting its lending rate to 0.15 per cent from 0.25 per cent and dropping its overnight deposit rate to minus 0.1 per cent from zero.

Investors welcomed the news. They had been counting on the ECB to take action to save the eurozone from falling into a deflationary spiral that would choke off growth.

Adatia said the move helped send positive ripples throughout world markets.

"Last week was the trigger point in my mind. If the ECB didn't do anything there would be a negative tone in the market,'' he said.

Despite his concerns about the TSX, Adatia expects markets to continue their upward trajectory barring any major negative news, like a sharp decline in the Canadian housing market, or an increase in tensions between Russia and Ukraine.

Huffington Post Canada, with files from The Canadian Press

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