U.S. and Canadian major indexes notched record-high closes on Thursday, and the yield on the 10-year Treasury note dipped to a five-month low, after U.S. inflation and jobs data further fueled expectations that the Federal Reserve will cut interest rates this month.
The benchmark 10-year yield briefly fell below 4% to its lowest since the April tariff crisis after the Labor Department said its August Consumer Price Index rose 0.4%. That followed July’s 0.2% rise and was just above the 0.3% increase expected. Year-on-year, the CPI rose 2.9% as expected, a bit hotter than July’s 2.7% rise.
The market looked beyond the warmer-than-expected number, however, confident that inflation would not be severe enough to keep the Fed on hold after next week’s meeting, especially after a fall in producer prices on Wednesday.
“Thankfully it wasn’t too far off of consensus. So I think in many ways the market’s viewing it as a bit of a relief that it wasn’t worse,” said Nate Thooft, chief investment officer for equity and multi-asset solutions at Manulife Investment Management. “Let’s be honest though, if we would have gotten this type of report even a handful of months ago, the markets would have had a much more negative reaction.”
It was a report on the other side of the Fed’s dual mandate, which showed a weakening labor market, that caught the market’s attention and reinforced expectations of at least a 25 basis point cut. The jobless claims release showed 263,000 people filed for unemployment insurance last week, much more than expected and more than the revised 236,000 last week.
“The slightly elevated CPI, and core CPI being in line with expectations, reinforces the notion that the Fed is going to cut rates next week,” said Oliver Pursche, senior vice president, advisor, at Wealthspire Advisors in Westport, Connecticut.
“The higher unemployment filings suggest there’s a possibility it could be 50 basis points as opposed to 25 ... although I think that’s still only a remote possibility. But it certainly seems like ‘bad news is good news’ is back,” Pursche said.
Futures trading indicates traders are certain the Fed will cut rates by at least 25 basis points at its policy meeting next week, with about a 7% chance of a deeper 50 basis point cut.
The yield on the benchmark U.S. 10-year Treasury note touched 3.994% and was 1.7 basis points lower as trading wrapped up, at 4.015%. Canadian bond yields were generally a touch lower as well.
Thursday’s data follows a series of bleak labour market datasets in the U.S. and Wednesday’s cooler-than-expected producer inflation reading.
The S&P 500 climbed 0.85% to end the session at 6,587.47 points. The Nasdaq gained 0.72% to 22,043.08 points, while the Dow rose 1.36% to 46,108.00 points. The Dow Jones Industrial Average closed at a record high, with gains of more than 1% in JPMorgan and Goldman Sachs Group.
Tesla climbed 6% and helped the S&P 500 and Nasdaq hit record highs.
The S&P/TSX composite index ended up 228.50 points, or 0.8%, at 29,407.89, eclipsing Wednesday’s record closing high.
“You are seeing strength in (U.S. stock market) sectors that are rate-sensitive, like financials, discretionary, materials,” said Ian Chong, a portfolio manager at First Avenue Investment Counsel. “Canada is piggybacking on a lot of that movement, but also we’ve had some pretty important announcements from Mark Carney today.”
Among five projects announced by the prime minister is a plan to double production of liquefied natural gas at the Shell-led LNG Canada plant in British Columbia, as part of a campaign to diversify the economy and reduce reliance on the United States.
“There is a large opportunity for job creation with those initiatives ... but it also signals that Canada is open for business, which should attract significant foreign investment,” Chong said, adding that natural gas producers, major lenders, as well as engineering and construction companies could be among the sectors to benefit.
Shares of construction and infrastructure development company Aecon Group Inc jumped 9.6% and Bird Construction Inc shares ended 6.9% higher. The industrials sector gained 1.6% and heavily weighted financials were up 1%. Consumer discretionary rose 1.4%, with shares of Magna International adding 2%. The auto parts supplier said it had appointed Philip D. Fracassa as its new chief financial officer.
In the U.S., Micron Technology jumped 7.5% to $150.55 after Citigroup raised its price target on the memory chipmaker to $175 from $150. The Philadelphia SE Semiconductor Index rose 0.9%, also hitting an all-time high.
Warner Bros Discovery surged 29% after the Wall Street Journal reported that Paramount Skydance is preparing a majority cash bid for the struggling media company.
Ten of the 11 S&P 500 sector indexes rose, led by materials, up 2.14%, followed by a 1.73% gain in health care.
Centene jumped 9% after the health insurer reaffirmed its annual profit forecast and said quality ratings for its Medicare plans were in line with expectations.
Oracle receded 6.2%, giving back some of the prior session’s 36% surge, which had added new fuel to Wall Street’s AI rally.
Delta Airlines fell 1.55% after the carrier reaffirmed its annual profit forecast.
Advancing issues outnumbered falling ones within the S&P 500 by a 6.8-to-one ratio. The S&P 500 posted 42 new highs and 4 new lows; the Nasdaq recorded 143 new highs and 42 new lows. Volume on U.S. exchanges was heavy, with 18.2 billion shares traded, compared to an average of 16.1 billion shares over the previous 20 sessions.
Reuters, Globe staff