Canada’s main stock index rose to an 18-month high on Friday, with the index posting broad-based gains ahead of the Christmas holiday weekend as cooling U.S. inflation bolstered investor hopes of a soft landing for the economy.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 115.46 points, or 0.6 per cent, at 20,881.19, its highest closing level since June 2022.
For the week, the index added 1.7 per cent. It is set to be closed on Monday and Tuesday for Christmas Day and Boxing Day, respectively.
U.S. benchmark the S&P 500 also gained as data showed that U.S. prices fell in November for the first time in more than 3-1/2 years, boosting financial market expectations of an interest rate cut from the Federal Reserve next March.
“Equity markets are closing 2023 on a strong note, with a sharp decline in Treasury yields, the prospect of 2024 rate cuts and a coveted soft landing all on investors’ radar,” Robert Kavcic, senior economist at BMO Capital Markets, said in a note.
The Canadian economy’s soft patch continued for the third straight month in October and a modest growth forecast for November will further support investors’ bets on an interest rate cut in the first quarter of next year, economists said.
Stocks that tend to produce predictable cash flows, so-called bond proxies, could particularly benefit from rate cuts.
They were among the biggest gainers, with the consumer staples sector climbing 1 per cent and real estate ending 1.1 per cent higher.
All 10 major sectors notched gains. Heavily weighted financials were up 0.6 per cent, and the materials group, which includes precious and base metals miners and fertilizer companies, added 0.7 per cent as gold prices rose.
TFI International was a standout. Its shares climbed 7.9 per cent after the logistics company said it had agreed to acquire Daseke in a deal valued at about $1.1 billion.
U.S. stocks gyrated to a mixed close on Friday as investors headed into the Christmas holiday weekend, having digested cooler-than-expected inflation data which firmed bets for Federal Reserve interest rate cuts in the new year.
All three indexes turned less decisive in light trading as the afternoon progressed, after an initial rally on data showing inflation is easing closer to the U.S. central bank’s target.
The Nasdaq joined the S&P 500 in positive territory, while the blue-chip Dow finished nominally lower.
“Some traders are willing to back away late on a Friday in order not to be exposed over a long weekend, and we are in a period of heightened geopolitical risks,” said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. “But most traders are investors are in the market because this has been a huge rally.”
Small caps handily outperformed the broader market, with the Russell 2000 ending up 0.8 per cent.
All three indexes notched their eighth consecutive weekly gains, the longest weekly winning streak for the S&P 500 since late 2017.
For the Nasdaq and the Dow, it marks the longest streak of consecutive weekly gains since the beginning of 2019.
The S&P 500 is now within 1 per cent of its record close reached in January 2022. Should it close above that level, that will confirm the benchmark index has been in a bull market since bottoming in October 2022.
“In the context of what we’ve seen on a year-to-date basis, it’s actually pretty extraordinary what we’ve seen in the fourth quarter,” said Michael Green, chief strategist at Simplify Asset Management in New York. “Small caps continue their absolute tear.”
“The Russell 2000 has gone from being down on the year as of August to now being up 15.6 per cent for the year,” Green said. “This truly has become an ‘everything’ rally.”
A swath of data was released on the last trading day before the long weekend, notably the Commerce Department’s Personal Consumption Expenditures (PCE) report, which showed inflation continues to meander down toward the Fed’s average annual 2 per cent target.
A separate report showed new orders for core capital goods landed well above analysts’ expectations, an upside surprise that bodes well for U.S. corporate spending plans.
Together, they reinforce the conviction that not only will the central bank begin cutting interest rates as early as March 2024, but it might pull off reining in inflation without tipping the economy into recession, a “soft landing.”
“The PCE report was very dovish. The topline number showed deflation for the month. It was very positive and perhaps a step toward lowering rates,” said Ghriskey. “Some call for that to happen in March. We think that’s overly optimistic.”
“The economy is strong,” Ghriskey added. “It doesn’t need lower rates at the moment.”
Financial markets are pricing in a 74.1 per cent likelihood that the Fed will implement a 25 basis point rate cut in March, according to CME’s FedWatch tool.
The Dow Jones Industrial Average fell 18.38 points, or 0.05 per cent, to 37,385.97, the S&P 500 gained 7.88 points, or 0.17 per cent, at 4,754.63 and the Nasdaq Composite added 29.11 points, or 0.19 per cent, at 14,992.97.
Of the 11 major sectors in the S&P 500, consumer discretionary was the sole loser, while consumer staples enjoyed the largest percentage gain.
Reuters
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