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TORONTO — Canada's main stock index moved further into record territory as shares of country's railways climbed and offset the impact of inflation rising in September at its fastest pace in 18 years.

Canadian National Railway Co. was the third-best performer on the index, gaining 5.2 per cent after it issued strong results and announced the impending retirement of its embattled CEO.

Rival Canadian Pacific Railway Ltd. rose 1.4 per cent even though its earnings missed expectations. The company also lowered its volume outlook for the year.

The grain crop will be a challenge in 2022 for both railways, said Ryan Crowther, portfolio manager at Franklin Templeton Canada. 

"Despite that, both railways have some avenues to be able to drive cost efficiencies that could still allow for a pretty good earnings outlook for both of them," he said in an interview. 

"And I think with Kansas City Â鶹ÊÓƵern now in the rear-view mirror, investors will be back to focusing on those operating metrics." 

Calgary-based CP is poised to purchase the U.S. railway after CN backed out of the acquisition chase once the U.S. regulator rejected its request for a voting trust. 

However, the bid upset activist investor TCI Fund Management Ltd., which has launched a proxy battle to replace four directors and CEO Jean-Jacques Ruest. Ruest this week said he would retire by the end of January, ahead of the March shareholder vote.

The S&P/TSX composite index closed up 101.20 points to 21,188.19, a record high.

The Toronto market has fully recovered from September's weakness to gain 5.6 per cent so far in October and is up 21.5 per cent so far in 2021.

That's the best performance of any major North American stock market.

In New York, the Dow Jones industrial average was up 152.03 points at 35,609.34 after setting its own record high. The S&P 500 index was up 16.56 points at 4,536.19, while the Nasdaq composite was down 7.41 points at 15,121.68. 

High inflation didn't appear to hurt the Canadian stock market. Statistics Canada reported that the annual rate of inflation was 4.4 per cent last month, the highest since 2003.

"Clearly these inflationary pressures are not letting up any time soon and I think investors are being forced to digest that," Crowther said.

That's why he said his company is always seeking businesses with pricing power or some form of inflation protection wherever it can.

"And I think this might be more important now than it has been for quite some time because clearly this is not letting up in the near term."

Higher inflation helped to push the Canadian 10-year bond yield up to 1.641 per cent, slightly below the U.S. yield of 1.656 per cent.

Elevated yields and the potential for central banks to hike interest rates is good for bank profitability. The financials sector was up 0.6 per cent Wednesday.

Not only will rates be a tailwind for banks, but it will increase the likelihood of dividend increases once permitted by Canadian regulators, said Crowther.

"And we think it's quite likely that we'll see some meaningful dividend increases across the board from the banks. 

Industrials was the best performer, gaining 1.6 per cent. 

Energy moved higher as crude oil prices rose above US$83 a barrel for an 11.2 per cent gain in October and 71.9 per cent increase in 2021.

The December crude contract was up 98 cents at US$83.42 per barrel and the November natural gas contract was up 8.2 cents at US$5.17 per mmBTU. 

Shares of Vermilion Energy Corp. rose four per cent while Enerplus Corp. rose 3.6 per cent..

The Canadian dollar traded for 81.11 cents US, a near four-month high and compared with 80.93 cents US on Tuesday. 

Metals also moved higher.

The December gold contract was up US$14.40 at US$1,784.90 an ounce and the December copper contract was up 3.2 cents at US$4.73 a pound. 

Energy and materials moved up despite news out of China that it planned to take measures to drive down commodity prices, specifically coal. That includes ordering all coal mines to operate at full capacity, issuing approvals for new mines and putting a new daily target for coal production. 

"That might have been colouring some of the sentiment in the energy and materials sectors today," Crowther said, noting that aluminum prices were down.

It also marks a U-turn from an environmental perspective compared to statements by China in April committing to various environmental goals.

"From that perspective this will be a setback."

This report by The Canadian Press was first published Oct. 20, 2021. 

Companies in this story: (TSX:VET, TSX:ERF, TSX:CNR, TSX:CP, TSX:GSPTSE, TSX:CADUSD=X) 

Ross Marowits, The Canadian Press