North American stocks ended with solid gains on Wednesday, with the TSX at its highest closing level in one week, after U.S. consumer prices registered their smallest annual increase in more than two years.
The data underscored expectations the Federal Reserve may let interest rates stand after one more 25 basis point hike expected at its July policy meeting.
The report also sent bond yields sharply lower, including in Canada, even as the nation’s central bank hiked its key lending rate by another 25 basis points.
Shares of big tech-related companies, which tend to be sensitive to higher interest rates, gave the S&P 500 its biggest boost. The technology sector was up 1.3%.
The weaker-than-expected U.S. inflation data sent the U.S. dollar lower against major currencies, which supported commodity prices. The materials sector on the TSX led sector gainers, with a rise of 3%.
In the 12 months through June, the CPI advanced 3.0%. That was the smallest year-on-year increase since March 2021 and followed a 4.0% rise in May.
U.S. indexes eased off their early highs by late afternoon, but “bulls remain firmly in charge,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
“Clearly the CPI data we got was what the bulls wanted to see, and those that have been sitting on the sidelines hoping for a pullback continue to get frustrated.”
The Dow Jones Industrial Average rose 86.01 points, or 0.25%, to 34,347.43, the S&P 500 gained 32.9 points, or 0.74%, to 4,472.16 and the Nasdaq Composite added 158.26 points, or 1.15%, to 13,918.96.
The S&P/TSX composite index ended up 192.21 points, or nearly 1%, at 20,070.77.
Investors have been weighing how much longer the Fed and the Bank of Canada will need to raise rates to curb inflation.
The U.S. Labor Department report also showed the smallest monthly gain in underlying consumer prices since August 2021.
“The market is sensing the Fed is getting closer and closer to that final one and done,” said Quincy Krosby, chief global strategist at LPL Financial in North Carolina.
The Bank of Canada hiked its benchmark interest rate by a quarter of a percentage point to a 22-year high of 5%, and said it could raise rates further because of the risk of inflation stalling above its 2% target.
But most economists believe the bank could be done with this tightening cycle, and markets are pricing in that likelihood as well.
Implied probabilities in swaps markets suggest only a 30% chance the Bank of Canada will hike interest rates again at its next policy meeting in September.
Canadian bond yields, which mostly reacted today to the U.S. inflation numbers, fell across the curve. The two-year was down 13.7 basis points at 4.668%.
In individual stock moves in Toronto, Laurentian Bank of Canada was a standout. Shares of Canada’s ninth largest bank jumped 26.6% after the bank said it is conducting a review of strategic options.
In contrast, Aritzia tumbled 23.9% after the apparel and accessories retailer reported quarterly earnings and analysts aggressively cut their price targets.
The S&P 500 banks index was up 0.6%. Reports from JPMorgan Chase and other major U.S. banks due Friday unofficially begin the second-quarter earnings season.
U.S. chipmaker Broadcom secured EU antitrust approval for its $61 billion proposed acquisition of cloud computing firm VMware after offering remedies to help rival Marvell Technology. Shares of VMware were up 2.8%, while Broadcom was up 0.9% and Marvel was up 1.2%.
Nvidia shares rose 3.5% after people familiar with the matter said SoftBank Group Corp’s chip designer Arm Ltd is in talks to bring in Nvidia as an anchor investor as it presses ahead with plans for a New York listing that could happen in September.
Also, Nvidia said it will invest $50 million to speed up training of Recursion’s artificial intelligence models for drug discovery. Recursion shares were up 78%.
Investors also digested news that U.S. Treasury Secretary Janet Yellen’s trip to China has raised hopes in Beijing that tariffs on Chinese imports may be eased.
Volume on U.S. exchanges was 11.20 billion shares, compared with the 11.15 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 3.23-to-1 ratio; on Nasdaq, a 1.93-to-1 ratio favored advancers. The S&P 500 posted 66 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 129 new highs and 42 new lows.
Reuters, Globe staff