Comments by U.S. Federal Reserve Chair Jerome Powell that interest rates were “just below” neutral propelled Wall Street higher on Wednesday, easing investor worries about the pace of interest rate hikes next year.
Hopes that the United States and China could call a trade war ceasefire at the upcoming G20 summit also helped stocks.
Meanwhile, the U.S. dollar retreated with potentially fewer rate increases on the horizon, and sterling rose after the Bank of England said the economy could shrink by as much as 8 per cent in about a year after a no-deal Brexit.
Equity investors reacted favorably to the comments by Powell, who indicated there may not be as many future interest rate hikes from the central bank as was initially anticipated.
“He gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.
U.S. President Donald Trump has recently been critical of the Fed for raising rates.
The Dow Jones Industrial Average rose 617.64 points, or 2.5 per cent, to 25,366.37, the S&P 500 gained 61.61 points, or 2.30 per cent, to 2,743.78 and the Nasdaq Composite added 208.89 points, or 2.95 per cent, to 7,291.59.
Canada’s main stock index also rose on Wednesday, driven by strong results from Royal Bank of Canada, which helped lift financial sector shares.
The Toronto Stock Exchange’s S&P/TSX Composite index unofficially jumped 227.16 points, or 1.52 per cent, at 15,171.25.
The financials sector gained 2 per cent, helped by a 2.7-per-cent gain in shares of Royal Bank of Canada.
RBC, Canada’s biggest lender, topped quarterly earnings expectations, helped by growth in its retail banking and wealth management divisions.
Bank of Nova Scotia rose 2.8 per cent and Toronto-Dominion Bank rose 2.3 per cent.
Also, Alimentation Couche-Tard Inc. rose 4.8 per cent, helping the consumer staples sector gain 1.4 per cent.
The world’s second-biggest convenience store operator beat analysts’ earnings expectation as it earned more from improved fuel sales.
Leading the index were Transcontinental Inc., up 10.6 per cent, Aphria Inc., up 10.3 per cent, and Hudson’s Bay Co., higher by 9.3 per cent.
Lagging shares were Crescent Point Energy Corp., down 6.1 per cent, Bombardier Inc., down 5.3 per cent, and AltaGas Ltd, lower by 5.1 per cent.
The pan-European STOXX 600 index was down 0.01 per cent and MSCI’s gauge of stocks across the globe gained 0.08 per cent.
Earlier, hopes for a U.S.-China truce on trade had also helped lift equities.
Despite Trump’s tough remarks on the trade dispute ahead of Saturday’s meeting with Chinese President Xi Jinping, markets focused on comments by White House economic adviser Larry Kudlow, who indicated the two countries could call a truce.
“If they come out with nothing this weekend, it’s going to be very bad,” said Bernd Berg, global macro strategist at Swiss-based Woodman Asset Management.
Still, lingering caution that the two sides would leave the summit without an agreement capped gains in Europe, where auto stocks were under pressure after a report Trump may soon impose new import tariffs.
A rapprochement between the United States and China is seen as crucial, given that world growth and trade are already showing signs of an alarming slowdown.
Uncertainty over global trade as well as Brexit and Italy’s conflict with the European Union, had supported the U.S. dollar, but the dollar index dipped 0.35 per cent after Powell’s comments.
The euro was up 0.74 per cent to $1.1371.
Sterling, meanwhile, gained 0.7 per cent after the Bank of England warned about the economic risks from exiting the European Union without a deal.
It said, Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in a worst-case Brexit scenario.
“Our jobs is not to hope for the best but to prepare for the worst,” BoE Governor Mark Carney said.
Some market participants took the remarks as a good sign.
“I think he’s assuaging fears, saying that they’re willing to do anything they need to do,” said Michael Skordeles, U.S. macro strategist at SunTrust Advisory Services in Atlanta, regarding the bank’s response to Brexit. “That’s helping global markets generally.”
U.S. government bond prices were mixed following the Fed chair’s speech.
Benchmark 10-year notes last rose 3/32 in price to yield 3.0462 per cent, from 3.057 per cent.
The 30-year bond last fell 6/32 in price to yield 3.3302 per cent, from 3.32 per cent.
Oil prices fell about 2.5 percent on Wednesday after U.S. crude inventories rose for the 10th straight week to the highest in a year, adding to worries about a worldwide supply glut.
Selling picked up just prior to the market’s settlement, extending a sell-off that has cut prices by more than 30 percent since the beginning of October.
U.S. crude settled down $1.27, or 2.5 per cent, at $50.29 a barrel, its lowest since Oct. 9, 2017. Brent crude ended $1.45, or 2.4 per cent, lower at $58.76 a barrel.
U.S. crude stockpiles rose 3.6 million barrels last week, exceeding expectations, to the most in year at 450 million barrels. After falling to 2-1/2-year lows in September, crude stocks have risen 14 percent with 10 straight weeks of increases.
The steady build in U.S. crude stocks is partly due to seasonal refining maintenance, but domestic production also has surged to a record 11.7 million barrels per day.
“It’s hard to get more bearish after this report after we wiped out more than 30 percent of our value in the last two months,” said Gene McGillian, vice president of market research for Tradition Energy in Stamford, Connecticut.
The market briefly pared some losses after a speech from Federal Reserve Chair Jerome Powell, who said risks to the U.S. economy are relatively balanced, suggesting the pace of interest-rate hikes may slow in coming months. That bolstered the stock market, but oil’s rally didn’t last.
“Oil tried to latch onto the stock market excitement but at the end of the day the selling pressure came in. What that tells you is that there are many people who are still bearish on oil,” said Phil Flynn, analyst at Price Futures Group in Chicago.