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U.S. stocks ended up sharply on Wednesday, with the S&P 500 and Nasdaq gaining more than 1% each as investors were optimistic ahead of an inflation report that could give the Federal Reserve room to dial back on its aggressive interest rate hikes. The TSX rose to its highest level in more than five weeks, led by a 2% jump in the real estate sector, attracting buyers as U.S. and Canadian bond yields declined.

The much-anticipated report due on Thursday is projected by economists polled by Reuters to show U.S. consumer prices grew 6.5% year-on-year in December, moderating from a 7.1% rise in November.

Benchmark stock indexes are up this year after falling sharply last year. Hopes that the Fed could soon ease back on its aggressive tightening after raising the federal funds rate seven times in 2022 have boosted the market in recent sessions, even as comments by some Fed officials have supported the view that the central bank needs to remain vigilant about raising rates to fight inflation.

“Investors are anticipating that we’re closer to a pause than at any other point last year,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. He said that would be welcomed by the market.

Also, “any time you have a down year, it’s not surprising many times to have a reversal at the start of the new year,” he said.

Money market participants see a 75% chance the Fed will raise the benchmark rate by 25 basis points in February.

The S&P/TSX Composite Index closed up 126.19 points, or 0.63%, at 20,025.05. From its low in December, the index has climbed 4.5%.

Sectors that tend to particularly benefit from an improved economic outlook were among the standouts, including a 1% gain for industrials and a 1.1% advance for consumer discretionary.

Heavily weighted financials rose 0.7% and energy ended 0.5% higher as the price of oil settled up 3.05% at $77.41 a barrel.

The materials sector gave back some of its recent rally, dipping 0.3%.

It was weighed by a decline of 1% for the shares of Barrick Gold Corp after the company said it signed new joint venture deals with Saudi Arabian Mining Co (Ma’aden), the Gulf’s largest miner, for two copper exploration projects.

Canadian and U.S. government bond yields fell across a flatter curve. The 10-year was down 11.2 basis points at 3.008%, its lowest level since Dec. 21. That helped to give a boost to the real estate sector, made up of relatively high yielding securities that struggle when yields rise on competing investments in the bond market.

On Wall Street, among sectors, real estate and consumer discretionary were the day’s strongest performers, while Microsoft, and other mega-cap growth names gave the S&P 500 its biggest boost.

The Dow Jones Industrial Average rose 268.91 points, or 0.8%, to 33,973.01, the S&P 500 gained 50.36 points, or 1.28%, to 3,969.61 and the Nasdaq Composite added 189.04 points, or 1.76%, to 10,931.67.

This week also marks the start of the fourth-quarter earnings season for S&P 500 companies, with overall S&P 500 earnings expected to have declined year-over-year, according to IBES data from Refinitiv.

The biggest U.S. banks, which kick off the season later this week, are expected to report lower quarterly earnings as risks of a recession rise due to monetary policy tightening.

Goldman Sachs began laying off staff on Wednesday in a sweeping cost-cutting drive, a source familiar with the matter said. Shares of Goldman Sachs ended up 2%.

Retailer Bed Bath & Beyond Inc sharply extended recent gains to end up 68.6% despite bleak quarterly results, with some investors speculating it could be a potential acquisition target.

Volume on U.S. exchanges was 11.42 billion shares, compared with the 11 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 3.78-to-1 ratio; on Nasdaq, a 2.25-to-1 ratio favored advancers. The S&P 500 posted 11 new 52-week highs and 1 new low; the Nasdaq Composite recorded 98 new highs and 20 new lows.

Reuters, Globe staff

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