The Dow, S&P 500 and TSX closed at record highs Wednesday after the Fed predicted a fast economic recovery from the coronavirus pandemic and said it would maintain its interest rate at close to zero.
In its statement following its two-day policy meeting, the Federal Reserve projected a rapid jump in U.S. economic growth and inflation this year as the COVID-19 crisis winds down, and repeated its pledge to keep its target interest rate near zero for years to come. Stocks extended gains after Fed Chair Jerome Powell said during a news conference that it is too early to discuss tapering-off measures to support the struggling economy.
“The Fed statement today was more optimistic than some expected, they raised their outlook for both economic growth and the labour market. The market’s view of the statement is that it was fairly optimistic,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York.
Following the Fed’s statement, the yield on 10-year Treasuries ticked lower to 1.6374%. The reaction was sharper in shorter durations, and reverberated in Canada, where the closely followed five-year government of Canada bond yield fell back below 1% after hitting a 14-month high near 1.066% earlier in the day.
A US$1.9 trillion spending stimulus and the rollout of vaccines have fueled a rotation into so-called value stocks that are viewed as likely to outperform as the economy recovers from the coronavirus pandemic.
At the same time, worries that the stimulus could overheat the economy and lead to higher inflation rates have triggered a strong rise in long-duration Treasury yields and made technology and other growth stocks less attractive.
The S&P/TSX Composite Index closed up 109.09 points, or 0.58%, at 18,983.10 - after briefly surpassing 19,000 for the first time following the Fed decision. Energy stocks had a strong session, gaining 1.39%, and materials was up 1.36% and financials 0.62%. Rogers Communications, which earlier this week launched a takeover offer for Shaw Communications, fell 5% after a two-day rally. Shaw closed nearly unchanged Wednesday.
Even though energy stocks advanced Wednesday, oil slipped for a fourth day, weighed down by expectations of weaker demand in Europe and by rising U.S. crude inventories.
Several European countries have paused the use of AstraZeneca’s COVID-19 vaccine on worries over possible side effects. Germany is seeing rising coronavirus cases, Italy is imposing a nationwide Easter lockdown and France plans to enforce tougher curbs.
“The suspension will not do the bloc’s economic and fuel recovery any favours,” said Stephen Brennock of oil broker PVM. “The hope now is that Europe can get its sluggish vaccine rollout back on track.”
Brent crude settled 39 cents, or 0.6% lower, at $68 a barrel while U.S. West Texas Intermediate (WTI) crude dropped 20 cents, or 0.3%, to end at $63.68. Both contracts fell by more than $1 during the session.
The Dow Jones Industrial Average rose 0.58% to end at 33,015.37 points, while the S&P 500 gained 0.29% to 3,974.12.
The Nasdaq Composite climbed 0.4% to 13,525.20. The Nasdaq remains down about 4% from its Feb. 12 record-high close.
Amazon.com Inc rose 1.4% and Tesla Inc added 3.7%, with the two companies giving the greatest lift to the S&P 500.
Six out of 11 S&P 500 sector indexes rose, with industrials and consumer discretionary the strongest performers and both up over 1%.
Fast-food retailer McDonald’s Corp gained 1.9% after Deutsche Bank raised its target price on the stock and also upgraded its recommendation to “buy” from “hold.”
Advancing issues outnumbered declining ones on the NYSE by a 1.33-to-1 ratio; on Nasdaq, a 1.46-to-1 ratio favored advancers.
The S&P 500 posted 44 new 52-week highs and no new lows; the Nasdaq Composite recorded 124 new highs and 18 new lows.
Volume on U.S. exchanges was 11.9 billion shares, compared with the 14.2 billion average for the full session over the last 20 trading days.
The April gold contract was down US$3.80 at US$1,727.10 an ounce and the May copper contract was up 4.75 cents at nearly US$4.12 a pound.
Reuters, Globe staff
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