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Wall Street ended sharply higher on Wednesday and bond yields fell after Federal Reserve Chair Jerome Powell said the central bank might scale back the pace of its interest rate hikes as soon as December.

The S&P 500 rallied from an earlier loss and the Nasdaq jumped after the release of Powell’s remarks prepared for delivery at the Brookings Institution think tank in Washington. The TSX also erased earlier losses to end higher, and although gains were less robust, they were still enough for the Canadian benchmark index to finish at its highest point since June.

Powell cautioned that the fight against inflation was far from over and that key questions remain unanswered, including how high rates will ultimately need to rise and for how long.

“(The market) has waited with bated breath, looking for that clarification in terms of duration and extent of Fed tightening. And anything that gives hope to the idea the Fed is becoming less hawkish is viewed as a positive for stocks, at least on a short-term basis,” said Chuck Carlson, Chief Executive Officer at Horizon Investment Services in Hammond, Indiana.

Bets that the Fed will reduce the size of its rate hikes, as well as recent data pointing to a mild cooling in inflation, led the benchmark S&P 500 index to its second straight month of gains.

The CME FedWatch Tool showed futures traders seeing a 75% chance that the Fed will raise interest rates by 50 basis points at its December meeting, up from a 65% chance before Powell’s comments were released. The FedWatch tool now shows a 25% chance of a 75 basis point increase.

U.S. bond yields rose early in the day after data showed the world’s largest economy grew more than expected in the third quarter, reinforcing expectations that the Fed will continue to raise interest rates well into next year, though at a slightly slower pace.

Gross domestic product expanded at a 2.9% annualized rate in the third quarter, according to the government’s second estimate, higher than the preliminary number of 2.6%. The economy had contracted at a 0.6% rate in the second quarter. The second estimate was also higher than economists’ forecast of 2.7%, a Reuters poll showed.

Bond yields later dropped as attention turned to Powell’s comments. By late afternoon, the 10-year U.S. Treasury yield was down by 13 basis points to 3.613%. Canadian bonds largely tracked their U.S. counterparts.

“To our ears and eyes, there was nothing particularly new in the remarks or the tone, other than to cement the view that the pace of rate hikes will slow in December,” said BMO Capital Markets chief economist Douglas Porter.

“Still, the quick drop in yields on the remarks is telling unto itself: a market that reacts bullishly to only quasi-bullish news is clearly bullish… for now,” he said.

Powell’s comments and the lower yields in fixed income also pressured the U.S. dollar. That sent the Canadian dollar higher, trading up about 1% at 74.40 U.S. cents by late afternoon.

In other economic news Thursday, an ADP National Employment report showed private employment increased by 127,000 in November, below expectations of 200,000 jobs, suggesting demand for U.S. labour was cooling amid high interest rates.

“The ADP employment number not meeting expectations fits into the narrative that the Fed will have room and start slowing down its rate hikes, and that definitely benefits interest rate sensitive assets,” said Keith Buchanan, a portfolio manager at Globalt in Atlanta.

The Labor Department’s closely watched nonfarm payrolls data is due on Friday. A report showed U.S. job openings falling to 10.334 million in October, against 10.687 million in the prior month.

The Toronto Stock Exchange’s S&P/TSX composite index ended up 175.85 points, or 0.9%, at 20,453.26, its highest closing level since June 9. For the month, it was up 5.3%, its second straight month of gains in excess of 5%.

“It does look like Christmas has come early for the TSX,” said Elvis Picardo, a portfolio manager at Luft Financial, iA Private Wealth.

“The tone has been positive ever since we hit the lows for the year in the middle of October,” Picardo said. “A large part of that has been driven by expectations that inflation will be dropping out here ... Powell’s comments cemented that view.”

The Toronto market’s technology sector rose 4.6%, helped by a gain of 9.5% for e-commerce giant Shopify Inc. Industrials climbed 1.5%, while heavily weighted financials ended 0.7% higher.

Financials rose despite a decline of 2.5% for the shares of National Bank of Canada, after the company’s move to set aside more funds to deal with bad loans dented fourth-quarter earnings. Shares in Royal Bank of Canada, which also reported earnings on Wednesday, finished nearly unchanged.

The S&P 500 climbed 3.09% to end the session at 4,079.97 points.

The Nasdaq gained 4.41% to 11,468.00 points, while Dow Jones Industrial Average rose 2.18% to 34,589.24 points.

For November, the S&P 500 climbed 5.4%, the Dow added 5.7% and the Nasdaq increased 4.4%.

The S&P 500 remains down about 14% so far in 2022, while the Nasdaq index has lost about 27%.

Nvidia rallied more than 8%, Microsoft jumped 6.2% and Apple climbed 4.9%.

Tesla Inc’s shares surged 7.7% after China Merchants Bank International said Tesla’s sales in China in November were boosted by price cuts and incentives offered on its Model 3 and Model Y.

Biogen Inc jumped 4.7% after its experimental Alzheimer’s drug slowed cognitive decline in a closely watched trial.

The Philadelphia Semiconductor index surged 5.85%, trimming its loss in 2022 to about 28%.

Volume on U.S. exchanges was heavy, with 15.0 billion shares traded, compared to an average of 11.1 billion shares over the previous 20 sessions.

Advancing issues outnumbered falling ones within the S&P 500 by a 24.1-to-one ratio. The S&P 500 posted 24 new highs and 1 new low; the Nasdaq recorded 117 new highs and 167 new lows.

Reuters, Globe staff

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