Photo: The Canadian Press

TORONTO — A broad-based rally led by energy and financials helped North American stock markets to recover from big losses early in the week over concerns about rising inflation.

The week spawned a yo-yo of investor motions, said Philip Petursson, chief investment strategist at Manulife Investment Management.

It started with three losing days in a row after U.S. inflation numbers spooked investors into worrying that the Federal Reserve would taper its loose monetary policy.

Markets rebounded on Thursday and Friday as fears subsided and flat retail sales data in April suggested that the central bank is probably further away from tapering and raising rates than was thought at the beginning of the week.

“I actually think that perhaps the market is reading too much into the single data point that comes out from any economic report,” Petursson said.

The S&P/TSX composite index closed up 230.88 points to 19,366.69 to come within half a point of last Friday’s record high.

In New York, the Dow Jones industrial average was up 360.68 points at 34,382.13. The S&P 500 index was up 61.35 points at 4,173.85, while the Nasdaq composite was up 304.99 points at 13,429.98.

U.S. stock markets fared a bit worse than the TSX over the past week, losing between 1.1% and 2.3%, but it wasn’t all that bad considering last week ended with three of the four stock markets closing at record high levels, Petursson said.

Financials have been the story of the week as banks benefit from a steeper yield curve, while energy and materials continued to be the driver they’ve been all year, he said.

The Canadian dollar traded for 82.58 cents US compared with 82.30 cents US on Thursday.

The loonie has enjoyed a strong run since the Bank of Canada indicated it would start pulling back on its financial stimulus.

“It wouldn’t surprise us to see it hold here or maybe retrace just a little bit before we see that next leg up towards potentially 84 cents,” Petersson said. “The expectation over the next two years is that the Bank of Canada could move faster than the Fed and so two-year rate expectations are moving up faster in Canada than in the United States and that tends to move the Canadian dollar.”