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U.S. stocks were higher on Wednesday, with the Dow leading gains and the S&P 500 setting a closing record, paced by drugmaker Merck, while investors looked towards the next piece of inflation data and Federal Reserve commentary for signals on the rate path. Canada’s S&P/TSX composite index also closed at a record high, with the materials sector leading the charge higher.

Merck & Co advanced 4.96% as the best performer on the Dow after the U.S. Food and Drug Administration approved its therapy for adults suffering from a rare lung condition.

The blue-chip Dow now sits less than 1% away from breaking the 40,000 level for the first time.

Gains on the tech-heavy Nasdaq were held in check, however, by 2.5% decline in AI giant Nvidia, which lost ground for a second straight session. Shares were still up more than 80% on the year, however.

The Canadian benchmark index rose 194.56 points, or 0.89%, to 22,107.08, eclipsing last Thursday’s close of 22,087.26 - its highest finish since 2022. The materials sector rose 2.7%, although the advance was broadly based.

In the middle of a quiet week for North American markets, the TSX is being pushed higher by “old economy” sectors like industrials, materials and financials, said Jules Boudreau, senior economist at Mackenzie Investment.

Gold has been enjoying a nice run, he added, propped up by buying from institutional investors and central banks, especially the People’s Bank of China.

Markets are also approaching the end of the quarter, a time when some rebalancing is to be expected, said Boudreau.

“In general, at quarter end, you see a rebalancing away from the asset classes that worked and towards those that lagged,” he said.

Recent data that showed hotter-than-expected U.S. inflation in the form of consumer prices (CPI) and producer prices (PPI) failed to markedly disrupt market expectations for a rate cut of at least 25 basis points (bps) from the Federal Reserve in June.

The Fed kept its projections for three rate cuts this year intact at its policy meeting last week, which central bank officials have largely stood by this week in comments.

The Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation gauge, is due on Good Friday, when the U.S. and Canadian stock markets will be closed.

“The Fed can and should take its time, largely because the economy is affording them that flexibility with the strength that we’re seeing, and that premature rate cuts only probably set us up for a more adverse outcome,” said Craig Fehr, head of investment strategy at Edward Jones in St. Louis.

“The real challenge for Fed officials has been massaging and guiding market expectations when they swing too far in one direction or another.”

Later in the day, Fed Board Governor Christopher Waller is expected to speak at the Economic Club of New York.

The Dow Jones Industrial Average rose 477.75 points, or 1.22% , to 39,760.08, the S&P 500 gained 44.91 points, or 0.86%, to 5,248.49 and the Nasdaq Composite gained 83.82 points, or 0.51%, to 16,399.52.

The gains marked the biggest daily percentage advance for the Dow since Dec. 13.

All three major U.S. stock indexes were poised for quarterly gains, with the S&P on track for its biggest first quarter percentage gain since 2019.

Traders see a 70.4% chance the Fed will begin its easing cycle in June, according to the CME FedWatch Tool.

Each of the 11 major S&P sectors were higher, with rate sensitive utilities and real estate were the best performers, climbing 2.75% and 2.42%, respectively, getting a lift as bond yields eased.

Among individual stocks, Trump Media & Technology Group jumped 14.19% a day after its stellar Nasdaq debut.

On the down side, GameStop, plunged 15.03% after the videogame retailer reported lower fourth-quarter revenue and said it had cut an unspecified number of jobs to reduce costs.

In Toronto, Alamos Gold was up 6.9% after the company said it would acquire Argonaut Gold for $325 million in an all-stock deal.

First Quantum Minerals was also a standout. Its shares gained 6.8% after Reuters reported executives from the miner met with Chinese government officials last week to discuss funding and business options involving top investor Jiangxi Copper.

Financials added 0.8% and energy was up 0.6%. The price of oil settled 0.3% lower at $81.35 a barrel, but was trading not far from its highest level since October, which it touched last week.

Advancing issues outnumbered decliners by a 4.5-to-1 ratio on the NYSE. On the Nasdaq, advancing issues outnumbered decliners by a 2.68-to-1 ratio.

The S&P 500 posted 62 new 52-week highs and no new lows while the Nasdaq recorded 184 new highs and 79 new lows.

Volume on U.S. exchanges was 10.65 billion shares, compared with the 12.2 billion average for the full session over the last 20 trading days. Activity is expected to lighten ahead of the Friday holiday.

Reuters, The Canadian Press, Globe staff

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