Wall Street closed higher Wednesday, boosted after minutes from the Federal Reserve’s latest monetary policy meeting showed policymakers unanimously felt the U.S. economy was very strong as they grappled with reining in inflation without triggering a recession. Canada’s main stock index also rose, reaching its highest level in more than a week, as higher oil prices boosted energy shares and stronger-than-expected bank earnings bolstered financials.
The minutes from the Federal Open Market Committee’s May meeting, which culminated in a 50-basis-point hike in the Fed funds target rate - the biggest jump in 22 years - showed most of the committee’s members judged that further such rate hikes would “likely be appropriate” at its upcoming June and July meetings.
All participants at the Federal Reserve’s May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation, which is at 40-year highs in the United States. They agreed inflation had become a key threat to the economy’s performance and was at risk of racing higher without action by the U.S. central bank, minutes of the session showed.
“The uniformity of opinion is a good thing,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “By the time (the Fed) gets to September, they will have plenty of economic data to make their move from there, so they continue to maintain optionality,” Mayfield added.
All three major U.S. stock indexes gyrated earlier in the day amid increasing jitters stemming from business and consumer surveys, economic data and corporate earnings reports suggesting a cooling American economy - even as the Fed prepares to toss a bucket of cold water on it to tackle decades-high inflation.
Fears that overly aggressive interest rate hikes by the Fed could tip the economy into recession despite evidence that inflation peaked in March has fueled those concerns.
“There’s some credence to the idea that inflation is doing (the Fed’s) job for them,” Mayfield said. “There’s already a cooling occurring, and financial conditions have tightened over the last month because of dollar strength and equity market weakness.”
On Thursday, the Commerce Department is due to release its second take on first-quarter GDP, which analysts expect to slow a slightly shallower contraction than the 1.4% quarterly annualized drop originally reported.
The Personal Consumption Expenditures (PCE) report will follow on Friday, which will provide further clues regarding consumer spending and whether inflation peaked in March, as other indicators have suggested.
The Toronto Stock Exchange’s S&P/TSX Composite Index ended up 97.55 points, or 0.5%, at 20,383.75, its highest closing level since May 17. It was the fourth straight day that the index advanced.
The heavily-weighted financial services sector gained 0.75%, as Bank of Nova Scotia and Bank of Montreal kicked off second-quarter earnings for the sector with better-than-expected profits. Bank of Nova Scotia rose 2.9%, while Bank of Montreal was down 0.2%.
“We have had a little bit of a positive surprise,” said Gregory Taylor, portfolio manager at Purpose Investments. “There was some concern with the banks, whether they would be hurt by the weakness in the Canadian consumer, but that does not seem to be the case as of yet.”
Technology in Toronto rose 1.1%, while energy ended 2% higher as oil prices climbed. U.S. crude oil futures settled up 0.5% at $110.33 a barrel, buoyed by tight supplies.
Among the sectors that lost ground was materials, which includes precious and base metals miners and fertilizer companies. It dipped 0.5% as gold fell 0.7% to about $1,853 per ounce.
On Wall Street, the Dow Jones Industrial Average rose 191.66 points, or 0.6%, to 32,120.28, the S&P 500 gained 37.25 points, or 0.95%, to 3,978.73 and the Nasdaq Composite added 170.29 points, or 1.51%, to 11,434.74.
Nine of the 11 major sectors in the S&P 500 rose, with consumer discretionary stocks leading the pack with a gain of 2.8%.
Amazon.com Inc and Tesla Inc provided the strongest lift to the S&P 500 and the Nasdaq, rising 2.6% and 4.9%, respectively.
Department store operator Nordstrom Inc surged 14% on the heels of upbeat annual profit and revenue forecasts.
Fast-food chain Wendy’s Co jumped 9.8% after a regulatory filing revealed that shareholder Nelson Peltz was considering a potential takeover bid for the company.
Shares of Nvidia Corp fell more than 8% in after-hours trading after the company’s second quarter revenue forecast missed expectations.
Advancing issues outnumbered declining ones on the NYSE by a 3.56-to-1 ratio; on Nasdaq, a 2.22-to-1 ratio favored advancers. The S&P 500 posted three new 52-week highs and 32 new lows; the Nasdaq Composite recorded 23 new highs and 255 new lows. Volume on U.S. exchanges was 11.19 billion shares, compared with the 13.27 billion-share average for the full session over the last 20 trading days.
Benchmark U.S. Treasury yields were little changed on Wednesday after the minutes from the Federal Reserve.
Yields earlier in the session hit six-week lows after data showed new orders for U.S. made capital goods rose less than expected in April, suggesting headwinds already are growing from rising rates and tighter financial conditions.
The yield on 10-year Treasury notes slipped 1.5 basis points to 2.745% after falling in the morning to 2.708%, a low last seen March 14.
Reuters, Globe staff
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