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Wall Street rallied to end higher on Wednesday, powered by a recovery in interest-sensitive growth stocks as investors digested hot inflation data and a mixed bag of quarterly results.

Falling U.S. Treasury yields helped the tech-heavy Nasdaq lead all three major U.S. stock indexes higher, with semiconductors outperforming the broader market. The Nasdaq jumped over 2% while the S&P 500 and the Dow gained more than 1%.

The TSX also rose, although gains were a little less robust, with energy, tech and materials sectors all gaining at least 1.5%. Canadian equities held steady as the Bank of Canada hiked interest rates by 50 basis points, a move that was widely expected but still helped to fuel a rally in the Canadian dollar.

“Bond yields may have gotten ahead of themselves and they’re dropping lower today,” said David Carter, managing director at Wealthspire Advisors in New York. “This helps almost all equities, but particularly growthy areas like tech.”

JPMorgan Chase & Co set the first-quarter earnings season off to an inauspicious start, reporting a 42% drop in quarterly profit. The downbeat results from the biggest U.S. lender sent its shares down 3.2%.

On the brighter side, Delta Air Lines’ results beat expectations and it forecast a current-quarter return to profit due to “historically high” demand. Its 6.2% share jump was contagious; the broader S&P 1500 airline index surged 6.8%. Air Canada rose 5.76%.

“It’s great that demand is so strong,” Carter added. “However, [that will] drive inflation higher, which will force the Fed to continue to raise rates, resulting in a weaker stock market.”

“Business is good. Almost too good.”

Strong demand also drove the Labor Department’s producer price index to a blistering 11.2% year-on-year growth rate, the hottest annual reading since the Labor Department started tracking annual data in 2010.

Core PPI and other major indicators have risen beyond the Federal Reserve’s average annual 2% inflation target.

Minutes from the most recent Fed policy meeting and subsequent remarks from its members have market participants setting easy odds for a series of 50-basis-point interest rate hikes in the coming months, as the central bank treads the delicate tightrope of curbing inflation without provoking a recession.

“It’s obvious now that the Fed is singing off the same song sheet, more tightening is coming,” Carter said. “Much of this, however, is priced in and expected.”

Indeed, the benchmark U.S. 10-year Treasury yield fell after the fresh producer price index did not dissuade some investors from believing that U.S. inflation may have peaked and a recent move higher in yields continued to unwind.

Yields initially climbed after the PPI data, before reversing course, and the 10-year yield touched a session low of 2.646%. Analysts pointed to the unwinding of positions which had pushed up yields in the run up to the inflation reports this week as also contributing to the decline after the data.

The Canadian bond market largely tracked the move in U.S. treasuries, although shorter term issues - including the 2-year bond - saw yields fall less than their U.S. counterparts. That likely reflected the Bank of Canada’s aggressive 50 basis point hike, and its suggestions that more are on the way. The central bank typically moves in quarter-point increments and has not announced a half-point hike since May 2000.

The Canadian dollar was trading 0.6% higher at 1.2570 to the greenback by late afternoon, or 79.55 U.S. cents, rebounding from its weakest intraday level since March 17 at 1.2676. Some of the appreciation in the loonie was linked to the Bank of Canada action, but also to overall weakness in the greenback on Wednesday against major currencies.

The S&P/TSX Composite Index gained 0.56%, 122.61 points, to 21,838.02. Financials, which tend to benefit from higher interest rates, were in the negative column, falling 0.22%.

Among stocks on the move, Copperleaf Technologies Inc. (CPLF-T), a global provider of AI-powered enterprise decision analytics software, fell 10.7% to an all-time low. Vancouver-based Copperleaf had been one of the better performing technology companies that went public last year in Canada – and one of the few to trade above its issue price, which was $15 a share. Copperleaf had impressed investors in part because it had never lost a customer among its client base, heavily weighted towards utility companies. CIBC on Wednesday initiated coverage of the stock with an $18 price target and a “neutral” rating.

The weakness in Copperleaf’s stock Wednesday likely stems from the expiry of the lockup associated with its initial public offering, BMO analyst Thanos Moschopoulos said in an email to The Globe and Mail. Under IPO lockups, which typically last several months, major shareholders are prohibited from selling their shares.

The Dow Jones Industrial Average rose 344.23 points, or 1.01%, to 34,564.59, the S&P 500 gained 49.14 points, or 1.12%, to 4,446.59 and the Nasdaq Composite added 272.02 points, or 2.03%, to 13,643.59.

Among the 11 major sectors of the S&P 500, consumer discretionary stocks enjoyed the largest percentage gains, jumping 2.5%.

Analyst estimates for the corporate earnings season have grown less optimistic. Aggregate annual S&P 500 earnings growth for the first three quarters of 2022 is estimated at 5.4% as of Wednesday, down from 7.5% at the beginning of the year.

On Thursday, the holiday-shortened week will end with results from a swath of big banks, including Morgan Stanley , Citigroup Inc, Goldman Sachs Group Inc, and Wells Fargo & Co.

Advancing issues outnumbered declining ones on the NYSE by a 2.92-to-1 ratio; on Nasdaq, a 2.87-to-1 ratio favored advancers. The S&P 500 posted 19 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 48 new highs and 168 new lows. Volume on U.S. exchanges was 10.52 billion shares, compared with the 12.33 billion average over the last 20 trading days.

Reuters, Globe staff

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