The TSX closed at a fresh record high Thursday, even as financials edged lower amid a widely expected decision by Canada’s banking regulator to allow banks and insurers to raise dividends and buy back shares effective immediately.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 77.03 points, or 0.4%, at 21,342.13.
Financials were weaker in both Canada and the U.S., pressured by a dive in government bond yields, with the market unwinding expectations of quicker Fed rate hikes a day after the central bank signaled it was in no hurry to do so.
The S&P 500 and Nasdaq also closed at record highs, as chipmaker stocks surged following Qualcomm’s strong financial forecast and investors digested the Federal Reserve’s decision to start reducing its monthly bond purchases.
The Dow Jones Industrial Average slipped from an all-time closing high hit on Wednesday, dragged down by shares of banks JPMorgan Chase & Co and Goldman Sachs Group.
“The growth side of the market is seeing more positive results today as they are benefiting from the falling yields that are developing,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
“The market had been positioning for higher yields in general given the Fed announcement of tapering. As we walked in today, there has been a reversal in that.”
A decision by the Bank of England to hold off on raising rates, which pushed some government bond yields down sharply in Europe, helped fuel a rally in Treasuries, according to Andrew Richman, senior fixed income strategist at Sterling Capital Management.
“It’s a big reset today,” he said.
The U.S. benchmark 10-year yield, which rose as high as 1.609% earlier in the session, later fell to its lowest level since mid-October at 1.509%, marking its biggest downward move since July 19. It was last down 5.8 basis points at 1.5209%.
Moves were similar in the Canadian bond market, with the 10-year down about 7 basis points to 1.660% in late afternoon trade.
The U.S. central bank announced on Wednesday it will start cutting its monthly $120 billion purchases of Treasuries and mortgage-backed securities by $15 billion a month, while affirming its belief that current high inflation “is expected to be transitory.” Fed Chair Jerome Powell indicated that more job growth was needed before the central bank should raise interest rates.
Yield curves steepened to their highest levels in about a week on Thursday.
“(The steepening is) telling us that the market is unwinding these expectations for a lot of rate hikes sooner rather than later, so I think (the market is) starting to realize, at least from what Powell has said, the Fed is pretty serious about being patient and allowing inflation to run a bit high,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York.
In Toronto, economically sensitive consumer discretionary shares rose 1.6%, led by gains for children’s entertainment company Spin Master Corp and apparel maker Gildan Activewear Inc after both reported results that beat estimates.
Energy shares rebounded after two days of losses, advancing 0.9% despite volatility in crude oil prices. U.S. crude oil futures settled 2.5% lower at $78.81 a barrel.
Even though Canada’s financial regulator said that the country’s banks and insurers can resume dividend increases, share buybacks and increase executive compensation, lifting a moratorium it has imposed on them since March 2020, financials ended 0.2% lower, weighed by declines for Manulife Financial Corp and Sun Life Financial Inc.
The senior executives at Canada’s two biggest life insurers said they were bracing for more COVID-19 related uncertainties in their fastest-growing market, Asia.
The Dow Jones Industrial Average fell 33.35 points, or 0.09%, to 36,124.23, the S&P 500 gained 19.49 points, or 0.42%, to 4,680.06 and the Nasdaq Composite added 128.72 points, or 0.81%, to 15,940.31.
The S&P 500 growth index rose 1.2% while the S&P 500 value index fell 0.5%.
Among S&P 500 sectors, tech and consumer discretionary led the way, both rising about 1.5%.
Qualcomm shares jumped 12.7% as the company forecast better-than-expected profits and revenue for its current quarter on soaring demand for chips used in phones, cars and other internet-connected devices.
The Philadelphia SE Semiconductor index climbed 3.5%, with Nvidia soaring 12%.
Better-than-expected third-quarter earnings have helped lift sentiment for equities. With about 420 companies having reported, S&P 500 earnings are expected to have climbed 41.2% in the third quarter from a year earlier, according to Refinitiv IBES.
“The corporate earnings story remains quite bright,” said Craig Fehr, investment strategist at Edward Jones.
“The market is rewarding companies that are beating and upping their outlook, and the market is punishing companies that are missing their estimates in the quarter and more importantly, perhaps, signaling a more sour outlook.”
Moderna shares tumbled about 18% as the company slashed the 2021 sales forecast for its COVID-19 vaccine by as much as $5 billion, grappling to fill vials and distribute them to meet unprecedented world demand. Moderna shares weighed on the S&P 500 healthcare sector, which fell 0.8%.
Data showed the number of Americans filing new claims for unemployment benefits fell to the lowest level in nearly 20 months last week, suggesting the economy was regaining momentum. Investors will get a critical view of the economy with the monthly jobs report on Friday.
Declining issues outnumbered advancing ones on the NYSE by a 1.12-to-1 ratio; on Nasdaq, a 1.24-to-1 ratio favored decliners.
The S&P 500 posted 75 new 52-week highs and five new lows; the Nasdaq Composite recorded 224 new highs and 38 new lows.
About 11.3 billion shares changed hands in U.S. exchanges, above the 10.4 billion daily average over the last 20 sessions.
Read more: Stocks that saw action on Thursday - and why
Reuters, with files from Darcy Keith of The Globe and Mail
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