U.S. and Canadian stocks closed higher on Thursday, extending recent gains as data showing a fall in U.S. consumer prices in December bolstered expectations of less aggressive interest rate hikes from the Federal Reserve. The resource-heavy TSX outperformed Wall Street thanks to gains in commodity prices.
U.S consumer prices fell for the first time in more than 2-1/2 years in December, the report showed, giving some hope that inflation was now on a sustained downward trend. On a monthly basis, inflation fell 0.1%, compared with a rise of 0.1% in November and 0.4% in October.
“Most investors are seeing inflation come down. That’s a positive sign, and I would expect earnings to be decent,” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, Texas.
Friday brings results from a number of big U.S. banks, kicking off the start of the fourth-quarter earnings season for S&P 500 companies.
Trading was choppy following the CPI data. Rents remained very high in the report, while the labour market remains tight, and inflation is still well above the Fed’s target.
A separate report on Thursday showed weekly jobless claims fell last week.
But some strategists said the slowdown in U.S. inflation may pave the way for the Fed to be able to bring down consumer prices without badly damaging growth.
Traders’ bets of a 25-basis point rate hike by the Fed in February shot up to 91% after the data, from 77% previously. Bets for a larger 50 basis point hike dwindled, and bond yields fell further in both Canada and the U.S. as traders grew more convinced the Fed will downshift the size of its next rate increase. The yield on the 10-year U.S. Treasury fell to 3.43% from 3.54% late Wednesday.
Philadelphia Fed President Patrick Harker and St. Louis Fed President James Bullard Thursday acknowledged the moderation in prices, but stressed the need for further monetary policy tightening to bring inflation down to the central bank’s target.
The Fed raised the key rate by 50 basis points in December, after four back-to-back 75-bps hikes.
Big U.S. banks are forecast to report lower fourth-quarter profits, as lenders stockpile funds to prepare for an economic slowdown.
Also, overall S&P 500 earnings are expected to have declined year-over-year in the fourth quarter, according to IBES data from Refinitiv, which would be the first quarterly U.S. earnings decline since 2020.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 186.15 points, or 0.9%, at 20,211.20, its fifth consecutive day of gains and its highest closing level since Dec. 5.
The Toronto market’s energy sector advanced 3.1% as U.S. crude oil futures settled 1.3% higher at $78.39 a barrel, helped by the U.S. inflation data and optimism over China’s demand outlook.
The materials group, which includes precious and base metals miners and fertilizer companies, added 1.4% as gold rallied, approaching the $1,900 per ounce level.
Heavily-weighted financials gained nearly 1% and technology ended 0.7% higher.
Luxury fashion design house Aritzia Inc was a drag, falling 9.9% after the company reported third-quarter results.
On Wall Street, Microsoft shares rose 1.2%, providing the biggest boost to the S&P 500 and Nasdaq, while energy shares also were higher along with oil prices. Energy rose 1.9% and was the day’s best performer among sectors.
The Dow Jones Industrial Average rose 216.96 points, or 0.64%, to 34,189.97, the S&P 500 gained 13.55 points, or 0.34%, to 3,983.16 and the Nasdaq Composite added 69.43 points, or 0.64%, to 11,001.11.
The S&P 500 is now up 3.7% for the year so far.
Volume on U.S. exchanges was 12.14 billion shares, compared with the 10.88 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 3.75-to-1 ratio; on Nasdaq, a 2.50-to-1 ratio favored advancers. The S&P 500 posted 14 new 52-week highs and one new low; the Nasdaq Composite recorded 96 new highs and 16 new lows.
Reuters, Globe staff
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