U.S. and Canadian stock markets opened sharply higher this morning, as many investors decided it was time for some bargain hunting after a painfully tumultuous week that left major indexes with deep losses. Speculation that the U.S. Federal Reserve may push back the timing of its first interest rate hike since the Great Recession - and maybe even hold off on concluding its bond-purchasing measures - is also helping stocks to regain some territory.
At 1015 a.m. (ET), stocks were extending earlier gains, with the TSX and Dow both up more than 200 points. The S&P/TSX composite index was up 220 points, or 1.5 per cent, at 14,273; the Dow Jones industrial average was up 210 points, or 1.3 per cent, at 16,327; and the S&P 500 was up 24 points, or 1.3 per cent, at 1,887.
The energy sector is continuing to recover, and was leading advances on the TSX, rising about 3 per cent. Industrials, which include rail stocks, were also advancing, with that sector up by more than 2 per cent. Only the materials sector was seeing red, held back by a drop in gold prices.
Markets found some support Thursday from comments by St. Louis Federal Reserve Bank president James Bullard that the Fed should consider delaying the end of its massive bond purchase program, given declining inflation expectations. That program of quantitative easing had been scheduled to end at the end of this month and had been credited with keeping long-term rates low and fuelling a strong rally on stock markets over the last few years. Mr. Bullard is not a voting member of the Fed, however, so his views may hold limited influence.
But expectations for the first interest rate hike by the Fed are also being pushed further out. The market - based on Fed fund futures - has now fully priced out a rate hike in September, 2015, and is even treating October of next year as less than an even-odds bet.
There's not a lot of fresh news so far this morning driving the improved sentiment. Rather, there are growing feelings that the steep sell-off that has left the S&P 500 and the TSX flirting with correction territory has left bargains in its wake. Analysts have been busy upgrading several stocks in recent days to buy ratings - especially in the energy sector - believing now is an attractive buying opportunity. There's also some positive signals coming from the small-cap sector. A sell-off there several weeks ago foreshadowed a broader market decline; now, small caps are generally leading attempted rallies.
European equities extended gains this morning on comments from a European Central Bank official saying that the bank will start buying assets within days as part of its previously announced plans to stimulate economic growth in the euro zone. The region has been a particular concern for investors given unexpectedly weak economic data out of Germany this month. The Stoxx Europe 600 broad index of stocks is up 1.6 per cent today, its biggest advance in more than two months, after it fell 7.7 per cent over the past eight days.
Crude is seeing a short-covering rally this morning, with technicals largely working in its favour after key support at $80 (U.S.) for West Texas Intermediate held in this week's carnage. Strong economic reports on Thursday out of the U.S. - including weekly jobless claims falling to their lowest level in 14 years - is lending some support for the commodity burdened by worries that supply is overtaking global demand. The November WTI futures contract at just past 10 a.m. (ET) was up 52 cents, or 0.6 per cent, at $83.22 (U.S.) per barrel - although that's off its high of $84.45 from early this morning.
Meanwhile, there were a handful of U.S. earnings reports out today, including a big beat by Morgan Stanley, whose shares are up 3 per cent at the open. General Electric shares are up about 3 per cent after beating the Street consensus on earnings per share by 1 cent. Next week is the heart of earnings season in the U.S., with roughly one-third of the market cap of the S&P 500 reporting. It's still very early, but results so far for the third quarter have been strong: excluding this morning's results, 71 companies have reported so far, with earnings beating expectations by 5.1 per cent on average while revenues have surprised by 1.1 per cent, according to RBC calculations.
In economic data this morning, U.S. housing starts and permits rose in September, as groundbreaking rose 6.3 per cent to an annual 1.02 million-unit pace. Meanwhile, U.S. consumer sentiment rose in October to the highest in more than seven years, boosted by views on personal finances and the national economy, a survey released on Friday showed. The Thomson Reuters/University of Michigan preliminary October reading on the overall index on consumer sentiment came in at 86.4, the highest since July 2007. The gains were unexpected, as a Reuters survey showed a forecast for a slip to 84.1 from last month's 84.6 reading.
The Canadian dollar inched up 0.01 of a cent to 88.91 cents US amid data showing tame inflationary pressures. Canada's cost of living was up 0.2 per cent in September on a seasonally adjusted basis after increasing 0.1 per cent in August.
With files from The Canadian Press and Reuters