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U.S. and Canadian stocks ended firmer on Thursday, with the S&P 500 hitting a record closing high, as economic data appeared to support the Federal Reserve’s assertion that the current wave of heightened inflation will be temporary.

All three major U.S. stock indexes advanced, with market-leading megacap stocks putting the Nasdaq out front. But economically sensitive transports and smallcaps ended the session in negative territory. Canada’s TSX also rose, but the index closed below the record high of last week even as oil prices edged up to their highest in over two years.

The U.S. Labor Department’s consumer price index (CPI) data came in above consensus and added fodder to the debate over whether current price spikes could morph into long-term inflation, despite the Fed’s assurances to the contrary.

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But a closer look showed that much of the price surge came from items such as commodities and airfares, and is therefore likely to be temporary.

“Earlier this week we had extremely boring market days as we all had our eyes on the bullseye of this CPI report,” said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina. “But once people looked under the surface, the majority of the higher inflation is due to the reopening, and stocks had a relief rally.”

“The market is taking it in stride as it realizes the whole economy isn’t overheating,” Detrick added.

A U.S. House of Representatives committee passed a $547 billion infrastructure spending bill targeting surface transportation, adopting some of President Joe Biden’s proposals as part of his broader $2.3 trillion infrastructure package.

Still, industrials and transports, sectors that stand to benefit from infrastructure spending, were in negative territory.

Unofficially, the Dow Jones Industrial Average rose 12.21 points, or 0.04%, to 34,459.35, the S&P 500 gained 19.71 points, or 0.47%, to 4,239.26 and the Nasdaq Composite added 106.86 points, or 0.77%, to 14,018.61.

Among the 11 major sectors of the S&P 500, healthcare enjoyed the largest percentage gains.

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But the interest rate-sensitive financial sector was the biggest loser, weighed by easing U.S. Treasury yields.

Financials were also among the weakest stocks on Bay Street, with that TSX sector declining 0.24%. It was otherwise a broad advance in Canada, with a 1.5% gain in the materials sector leading the rally.

The S&P/TSX Composite Index closed up 47.20 points, or 0.24%, at 20,049.47.

Oil prices were higher Thursday on optimism for strong economic demand after new U.S. unemployment claims fell to their lowest since the country’s first wave of COVID-19 last year.

The market shook off a brief plunge after media reports suggested the United States lifted sanctions on Iranian oil officials.

The U.S. Treasury later said it had removed sanctions on three former Iranian officials and on two companies previously involved in trading Iranian petrochemical products. A U.S. official told Reuters that the activity was “routine” and not related to talks with Iran over reviving the 2015 deal to restrict its nuclear weapons development.

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Brent futures rose 30 cents, or 0.4%, to settle at $72.52 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 33 cents, or 0.5%, to end at $70.29.

Those were the highest closes for Brent since May 2019 and WTI since October 2018.

In credit markets Thursday, investors reversed course and sent longer-term U.S. Treasury yields lower during a see-saw trading session, suggesting an embrace of the view that inflationary pressures are temporary.

The benchmark 10-year yield was down 2.2 basis points at 1.4671% in afternoon trading, near its low for the session and the least since March.

The yield had trended down from a high of 1.535% on Thursday morning, reached soon after the U.S. Labor Department reported inflation numbers.

The drop in yields after the initial surge showed the market growing more comfortable with the message from U.S. Federal Reserve officials that inflationary pressures are temporary as the U.S. economy reopens quickly, said Andy Richman, Sterling Capital Management managing director.

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“It’s buying into the Fed’s wait-and-see approach,” Richman said.

Canadian government yields eased across a flatter curve, tracking the move in U.S. Treasuries. The 10-year fell as much as 2.7 basis points to 1.384%, its lowest level since March 11.

Read more: Stocks that saw action Thursday - and why

Reuters, Globe staff

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