U.S. and Canadian stocks closed sharply higher on Friday as rising expectations of a December interest rate cut by the Federal Reserve offset concerns over lofty tech valuations. A broad rally started gathering momentum by late morning, pushing indexes to substantial gains on the day.
The volatile session caps a tumultuous week in which U.S. and world stocks lost ground from last Friday’s close.
The Fed, deprived of official U.S. economic data during the recently ended government shutdown, at last got a fresh glimpse of the labour market on Thursday, which showed the unemployment rate unexpectedly ticking higher.
As a result, financial markets are pricing in an increased likelihood of a third and final rate cut this year from the Fed. CME’s FedWatch tool sets the odds at 73.3%, a significant bump from 39.1% on Thursday.
Messaging from monetary policymakers is mixed. New York Fed President John Williams said the Fed could still cut rates in the near term, while Dallas Fed President Lorie Logan called for them to be left on hold while the central bank assesses the effect of current rates on the economy.
“New York Fed President Williams’ comments seem to have shifted the perception on that December rate cut potential,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “Part of the reason for the move today is that Williams was seen as one of the hawkish leans, so the market could perceive it representing someone stepping over the line towards the dovish point of view.”
“Other than that, yesterday was a pretty broad and rough selling day into the close, so (the market was) primed for some bounce,” Mayfield added.
Solid earnings from artificial intelligence vanguards, notably chipmaker Nvidia, momentarily eased concerns that AI-related tech stocks, which powered the stock market’s rally in recent months, are overpriced and could be due for a correction.
The third-quarter earnings season is nearly wrapping up, with more than 94% of the companies in the S&P 500 having reported. Of those, 83% beat earnings estimates, according to LSEG data.
The Dow Jones Industrial Average rose 493.30 points, or 1.08%, to 46,245.56, the S&P 500 rose 64.20 points, or 0.98%, to 6,602.96 and the Nasdaq Composite rose 195.04 points, or 0.88%, to 22,273.08.
The S&P/TSX composite index ended up 254.10 points, or 0.9%, at 30,160.65. For the week, the index was down 0.5%.
The technology sector rose 1.3% on the TSX, with e-commerce company Shopify Inc adding 2.1%.
The materials group, which includes metal mining shares, added 1.1% as copper prices rose. U.S. gold futures fell 0.05% to $4,054.30 an ounce.
Financials were up 1.3% and consumer discretionary added 2.4%. Shares of auto parts supplier Magna International Inc climbed 5.6%. China’s Guangzhou Automobile Group will build its electric AION V model at a Magna facility in Austria, the two companies said on Thursday.
Energy was the only one of 10 TSX major sectors to end lower. It fell 0.8% as the price of oil settled 1.6% lower at US$58.06 a barrel. The U.S. is pushing for a Russia-Ukraine peace deal that could boostglobal oil supplies.
MSCI’s gauge of stocks across the globe rose 2.73 points, or 0.28%, to 971.26. U.S. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.01% to 100.15, with the euro down 0.09% at $1.1517.
Cryptocurrencies sank to multi-month lows amid a broader flight from riskier assets. Bitcoin fell 2.93% to $84,661.00. U.S. Treasury yields dipped as Fed rate cut bets rose. The yield on benchmark U.S. 10-year notes fell 4.1 basis points to 4.063%, from 4.104% late on Thursday. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 5.1 basis points to 3.508%, from 3.558% late on Thursday.
Reuters, Globe staff