(New York) The New York Stock Exchange ended sharply higher on Friday, still driven by a technical rebound as well as by investors who foresee the end of the monetary tightening cycle by the summer.
The Dow Jones gained 1.17%, the NASDAQ index gained 1.97% and the broader S&P 500 index, 1.61%.
For Jack Ablin, of Cresset Capital, the movement was impelled on Thursday by the rebound of the S&P 500 on a major technical threshold, namely the average of the last 200 trading days, before continuing on Friday.
“It shows that the market is technically sound,” explained Cresset’s chief investment officer.
After several turbulent weeks, which saw a recalibration of New York market expectations as to the trajectory of the Federal Reserve (Fed), operators believe they have digested this new scenario.
They were reassured by the declarations, Thursday, of the president of the antenna of the Fed in Atlanta, Raphael Bostic, evoking a pause of the monetary tightening this summer.
“The feeling that we are coming (to the peak of the monetary cycle) is gaining ground,” according to Jack Ablin. “It may not be May, or even June, but within a few months the Fed will wrap up its tightening program. »
An analysis that resulted in a clear relaxation of bond rates. The yield on 10-year US government bonds thus fell to 3.95%, against 4.05% the day before closing.
Wall Street was also encouraged by the indicator of the day, the ISM index, which showed that activity in the services sector had maintained, in February, a rate roughly equivalent to that of January (55.1% against 55.2).
The ISM survey also revealed a slight deceleration in the prices paid by purchasing managers for this same sector, to 65.6% against 67.8 in January, offering rare good news on the inflation.
The easing in rates has been a blessing for technology stocks, which are very dependent on the cost of money to finance their accelerated growth.
Apple (+3.51%), Tesla (+3.61%), Amazon (+3.01%) or Meta (+6.14%) were at the forefront.
Semiconductor manufacturer Broadcom (+5.70%) also shone thanks to results that exceeded expectations. The group considers itself well positioned to take advantage of the acceleration of artificial intelligence (AI), which requires ever faster chips.
C3 AI, one of the few Wall Street-listed companies entirely dedicated to AI, soared the market (+33.65%) thanks to better-than-expected forecasts for the current quarter. Managing Director Thomas Siebel said there are “proper winds” linked to the current interest in artificial intelligence.
Bank stocks were also on a roll, thanks to the lull in short-term bond rates, on which they depend to finance their activities. Goldman Sachs (+2.29%), Bank of America (+2.00%) or JPMorgan Chase (+1.84%) all advanced.
The Victoria’s Secret lingerie brand (+5.22%) benefited from results that exceeded expectations. Investors nonetheless found the first-quarter earnings forecast disappointing and, for GlobalData analyst Neil Saunders, Victoria’s Secret “is a brand in decline.”
The Costco chain of semi-wholesale stores dropped 2.15%, after publishing a lower-than-expected turnover and cautious comments from general manager Craig Jelinek.
Computer maker Dell (-0.95%) suffered from forecasts falling short of analysts’ projections, despite better-than-expected quarterly results.
The Toronto Stock Exchange
The Toronto Stock Exchange closed nearly 250 points higher on Friday, with Wall Street also posting strong gains.
The Toronto floor’s S&P/TSX Composite Index gained 244.37 points to 20,581.58 points.
“It was a great day in Canada today,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
He adds that with crude oil up more than 2.1% on the day and gold also gaining ground, the resource-heavy TSX was on the rise.
“A good day for miners, a good day for energy, is a good day for Canada,” adds Cieszynski.
The rally was the icing on the cake for Bay Street’s first week of gains after three straight weeks of losses. The past week in particular has been tough for Canadian equities, which posted their biggest losses since the start of 2023.
According to Cieszynski, markets appear to be stabilizing after what was a rapid rise, and then subsequent fall, in the first two months of the year.
By early 2023, Wall Street had rallied on hopes that slowing inflation would prompt the Fed to ease its interest rate hikes. But last month, the recovery reversed after several reports on the economy were more buoyant than expected. They included data on the labor market, consumer spending, and inflation itself at multiple levels.
The strong data means investors have had to resign themselves to the likelihood of further interest rate hikes by the US Federal Reserve this year, Cieszynski says.
“It seems people were a bit shocked at first, surprised if you will, and now people are getting used to the idea again,” he adds.
Evidence that investors are settling into their newly adjusted expectations, the yield on 10-year US Treasuries fell back to 3.96% from 4.06% on Thursday night. It was a respite from its rise last month, as expectations of a more hawkish Fed helped push bond yields higher.
“The yield on 10-year US Treasuries, which is coming back below 4%, is helping the markets in general,” said Cieszynski.
Heading into next week, Cieszynski said investors will be watching the Bank of Canada’s next interest rate announcement, scheduled for Wednesday, to see if it actually confirms a pause in rate hikes as expected.
“I suspect they’ll take a break,” he says.
“But the question then is, what does it mean for the Canadian dollar if the Bank of Canada officially pauses while the US Fed continues to hike rates? »
The other thing to watch next week, according to Cieszynski, is new employment data coming out of the United States and Canada. The job market over the past few months has remained consistently more hyperactive than expected — and while that’s great news for workers, it also suggests that central banks may not be willing to let up just yet. to curb inflation.
“That’s the next big economic indicator to come, and of course it’s not just employment data, but everyone’s watching wage inflation as well,” Cieszynski concludes.
In the currency market, the Canadian dollar traded at an average rate of 73.48 cents US, up from 73.45 cents US on Thursday.
On the New York Commodities Exchange, crude oil rose US$1.52 to US$79.68 a barrel, while natural gas rose 24 cents US to 3.01 US$ per million BTUs.
The price of gold gained US$14.10 to US$1854.60 an ounce and that of copper lost 1 US cent to US$4.07 per pound.
Amanda Stephenson, The Canadian Press, with information from The Associated Press