The blue-chip Dow Jones Industrial Average closed at a record high on Friday as investors welcomed a subdued U.S. inflation report that also lifted small-cap stocks which stand to benefit from more interest rates cuts by the Federal Reserve.
The TSX, Nasdaq and the S&P 500 edged slightly lower but all indexes stayed close to recent record highs. All four indexes logged their third consecutive week of gains.
“The market at this point..(is) pretty much pricing in a soft landing, and pricing in that we have defeated inflation, and that the Fed will be able to lower rates without causing a bunch of harm to the economy”, said Liz Young Thomas, head of investment strategy at SoFi in New York.
The Commerce Department reported a moderate rise in consumer spending while inflation pressures continued to ease. Separately, the University of Michigan’s final September reading on consumer sentiment came in at 70.1, surpassing economists’ expectations of 69.3, according to a Reuters poll.
The S&P/TSX composite index ended down 77.01 points, or 0.3%, at 23,956.82, after posting a record closing high the day before. For the week, the index was up 0.4%, adding to gains in the previous two weeks.
“Value strategies as well as dividend-yield products and low-vol (volatility) methodologies have been doing quite well,” said Sid Mokhtari, chief market technician for CIBC Capital Markets. “They are scoring well because of the fact that a rate cut cycle in the U.S. has begun.”
The Federal Reserve is expected to ease interest rates further over the coming months after cutting last week for the first time in four years.
The Bank of Canada has also been lowering borrowing costs. Canada’s gross domestic product rose 0.2% rate in July, but an advance estimate indicated that growth likely stalled in August, bolstering hopes for a super-sized rate cut next month.
“We still think there are plenty of investments that are still sitting within term deposits and GICs (guaranteed investment certificates) that may find their way into equities that have a higher yielding backdrop, and that has been buoying the financials and REITs and telecoms,” Mokhtari said.
The TSX materials group fell 2.1% on Friday, giving back some recent gains, as the price of gold pulled back from a record high.
Technology ended 1.7% lower, with shares of Blackberry Ltd declining 2.3% after the company’s second-quarter results failed to impress investors.
Energy helped limit the TSX’s decline. It rallied 2% as oil settled 0.8% higher at US$68.18 a barrel, clawing back some recent losses.
The Dow Jones Industrial Average rose 137.89 points, or 0.33%, to 42,313.00, the S&P 500 lost 7.20 points, or 0.13%, to 5,738.17 and the Nasdaq Composite lost 70.70 points, or 0.39%, to 18,119.59.
The Russell 2000 index, which tracks small caps that fare better in a low-rate environment, gained 0.67% to a one-week high.
Shares of Nvidia dropped 2.17%, weighing on the technology-heavy Nasdaq.
Investors now slightly favour a 50-basis-point cut at the Fed’s next meeting with a 52.1% chance, up from a coin toss before the data, as per the CME Group’s FedWatch Tool.
Cooling price pressures prompted the Fed to cut rates by 50 bps last week. Focus will now shift to a slew of labour market reports due next week.
Among individual stocks, Bristol-Myers Squibb added 1.58% after the U.S. FDA approved its schizophrenia drug.
Costco Wholesale lost 1.76% after posting downbeat fourth-quarter revenue.
U.S.-listed shares of Chinese firms such as Alibaba rose 2.15%, PDD Holdings climbed 4.67% and NetEase gained 2.65% after China’s central bank lowered interest rates this week and injected liquidity into the banking system.
The optimism extended to miners in U.S. trading, with Arcadium gaining 2.13%, and U.S.-listed shares of BHP also adding 1.81%.
Advancing issues outnumbered decliners by a 1.82-to-1 ratio on the NYSE. There were 605 new highs and 31 new lows on the NYSE. The S&P 500 posted 42 new 52-week highs and no new lows while the Nasdaq Composite recorded 74 new highs and 65 new lows. Volume on U.S. exchanges was 11.50 billion shares, compared with the 11.87 billion average for the full session over the last 20 trading days.
Reuters, Globe staff