U.S. stocks ended sharply higher on Tuesday, with the S&P 500 registering a record high close as Oracle shares surged and consumer price data failed to dampen investor hopes of interest rate cuts in the coming months. The TSX also rose, albeit more modestly, coming within 300 points of its own record high.
The Labor Department reported that the Consumer Price Index rose 0.4% last month after climbing 0.3% in January. Excluding volatile food and energy components, consumer prices increased 0.4% in February after rising by the same margin in January.
“Equity markets don’t seem that fazed by the disappointing result. They recognize that this is not a great result, but it’s not bad enough to completely knock the Fed off track,” said Doug Porter, chief economist at BMO Capital Markets.
“There’s still the prospect for interest rate cuts sometime around the middle part of the year.”
Traders now see a 70% chance of the first rate cut coming in June, the CME FedWatch Tool showed, versus 71% ahead of the inflation report.
“Investors have gotten comfortable with the notion that it’s not about when the Fed will lower rates but rather by how much, and a delay - whether it happens in May like many were initially hoping or in September - ultimately doesn’t matter,” said Oliver Pursche, senior vice president and advisor for Wealthspire Advisors in Westport, Connecticut. “It’s that they will and that a less restrictive environment is coming.”
“If you look at economic data, it continues to be pretty strong,” Pursche added. “And from my perspective as a consumer, employee and investor, I’d rather have a strong economy and slightly elevated interest rates than a weak economy that requires stimulus.”
U.S. producer price data is due later this week. Canada releases its own February inflation report next Tuesday.
Shares of Oracle jumped 11.7% and reached a record high, a day after it reported upbeat quarterly results and said it is set to make a joint announcement with artificial intelligence chip giant Nvidia.
Nvidia shares gained 7.2% and an index of semiconductors rose 2.1% and snapped a two-day losing streak.
The Dow Jones Industrial Average rose 235.74 points, or 0.61%, to 39,005.4. The S&P 500 gained 57.3 points, or 1.12%, at 5,175.24 and the Nasdaq Composite added 246.36 points, or 1.54%, at 16,265.64.
On the downside, shares of Boeing fell 4.3%. Boeing told employees in a memo on Tuesday it is adding weekly compliance checks for every 737 factory work area and additional audits of equipment to reduce quality problems.
The U.S. Federal Aviation Administration has curbed Boeing production following the mid-air panel blowout on a new Alaska Airlines 737 MAX 9 jet on Jan. 5. Also, U.S. carriers warned that their plans to increase capacity were in doubt due to jet delivery delays from Boeing. Shares of Southwest Airlines were down 14.9%.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 61.80 points, or 0.3%, at 21,831.02, its highest closing level since April 2022. It hit a record closing high that month of 22,087.22.
The TSX technology sector rose 0.8%, with e-commerce company Shopify gaining 1.9%. Industrials were also up 0.8% and heavily-weighted financials added 0.2%.
National Bank of Canada denied a media report saying it was in talks to sell its Cambodian unit. The bank’s shares rose 0.3%.
The high-dividend paying utilities sector lost 1.1% as bond yields climbed, while the materials sector gave back some recent gains. It fell 0.6%, as gold’s record-setting rally lost some momentum.
The stock market rally came despite a rise in bond yields, as credit markets displayed a somewhat different reaction to the inflation data. Benchmark U.S. 10-year notes yields were last up 5.8 basis points (bps) on the day at 4.156%. Two-year yields gained 6.9 bps to 4.600%. Canadian bond yields rose by a similar degree.
The U.S. 10-year Treasury yield got an extra lift after weak demand at the Treasury’s auction of $39 billion of the benchmark note.
“Sticky inflation seems to be very much intact at this point,” said Phillip Colmar, global strategist at MRB Partners in New York. “This is problematic for the bond market and the Fed’s view that inflation’s ultimately coming down to that 2% target.”
Tiffany Wilding, managing director and economist at PIMCO, said that “while today’s report alone may not be enough stop the Fed from cutting rates midyear, it should raise real questions about the extent to which inflation will move back to target absent some further easing in the labour market.”
Volume on U.S. exchanges was 10.97 billion shares, compared with the 12.07 billion average for the full session over the last 20 trading days. Advancing issues outnumbered decliners on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.20-to-1 ratio favored decliners. The S&P 500 posted 48 new 52-week highs and no new lows; the Nasdaq Composite recorded 59 new highs and 118 new lows.
Reuters, Globe staff
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