U.S. and Canadian stocks ended firmer on Thursday, with the Dow Jones Industrial Average notching its second straight record high close, lifted by optimism that borrowing rates will decrease next year following a dovish pivot by the Federal Reserve.
Interest rate sensitive banking stocks rallied in Toronto on bets that an expected drop in borrowing costs next year would boost credit growth and revive the housing market.
Investors were closely watching U.S. 10-year Treasury yields, which broke below 4% for the first time since early August in the wake of the Fed statement. They fell further on Thursday, to 3.9%. Canadian bond yields were also lower across the curve, with the closely watched 5-year yield down 6 basis points to its lowest since May.
The U.S. Federal Reserve’s guidance on Wednesday that borrowing costs are expected to come down next year has turned the market sentiment globally, with investors piling into beaten down stocks.
“With major economic data and central bank decisions now behind us, the path is clear for the market through year-end. We’re now entering the Santa Claus Rally - a bullish seasonal period driven by investor optimism and higher stock prices. The market is now carrying significant momentum,” said Brandon Michael, senior investment analyst at ABC Funds.
Not everyone is as upbeat.
“The market by any measure and any metric is overbought and has been overbought, and a consolidation or a pause has been expected, especially after yesterday’s surge,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.
“While the market celebrates lower rates, it can question why yields are below 4%” as investors weigh the economic outlook, she added.
U.S. retail sales unexpectedly rose in November as the holiday shopping season got off to a brisk start, the Commerce Department reported on Thursday, further alleviating fears of a recession.
On Friday, the Bank of Canada Governor Tiff Macklem is expected to deliver his final speech of the year, and investors will wait for clues for rate cuts in Canada.
Canada’s housing market slowed further in November, with higher interest rates denting demand, data from the Canadian Real Estate Association showed Thursday. But CREA also noted that expectations of lower interest rates are expected to make the spring market more active.
The Toronto Stock Exchange’s S&P/TSX composite index rose 149.35 points, or 0.72%, at 20,778.80, its highest close since June 8, 2022.
The rate-sensitive financial sub-index gained 1.2%.
Energy led gains, rising 1.6% on higher crude oil prices, while the materials sector, which houses Canada’s major mining firms, jumped 1.2% as prices of most base and precious metals rallied.
Among individual stocks, Pembina Pipeline fell 1.5% after the company said it would buy Enbridge’s interests in the Alliance Pipeline, Aux Sable and NRGreen joint ventures for C$3.1 billion.
Grocery chain operator Empire Co. Ltd slumped 11.2% after reporting a 6% drop in quarterly adjusted net earnings.
Cenovus Energy gained 3.1% after the company said it expects higher production from its U.S. refineries in 2024.
On Wall Street, Apple hit an intra-day record high before surrendering some of its gains to close up 0.08%.
Tesla shares surged 4.9%, with about US$40 billion worth changing hands. Its turnover was more than double that of Nvidia, the next most traded company. The heavyweight chipmaker gained 0.5%.
Sectors that have underperformed this year also rose. Of the 11 S&P 500 sector indexes, six closed higher, led by energy, up 2.94%, followed by a 2.62% gain in real estate .
The S&P 500 climbed 0.26% to end at 4,719.55 points. It remains down less than 2% from its record high close in January 2022.
The Nasdaq Composite Index gained 0.19% at 14,761.56 points, while the Dow Jones Industrial Average rose 0.43% to 37,248.35 points.
Volume on U.S. exchanges was unusually heavy, with 17.1 billion shares traded, compared to an average of 11.1 billion shares over the previous 20 sessions.
The PHLX semiconductor index surged 2.7% to close at a record high. The Russell Index of smaller companies also jumped about 2.7%.
Adobe fell 6.35% after the Photoshop maker forecast annual and quarterly revenue below estimates.
Advancing issues outnumbered falling ones within the S&P 500 by a 1.9-to-one ratio. The S&P 500 posted 96 new highs and no new lows; the Nasdaq recorded 259 new highs and 64 new lows.
Investors cheer Fed’s dovish pivot, as focus shifts to 2024 risks
Reuters, Globe staff