Wall Street closed sharply higher on Thursday after optimistic retail earnings outlooks and waning concerns about overly aggressive interest rate hikes by the Federal Reserve put investors in a buying mood.
All three major U.S. stock indexes posted solid gains, with economically sensitive consumer discretionary and microchip stocks beating the broader market.
The tech-laden Nasdaq surged the most - its 2.7% advance was powered by gains in Apple Inc, Tesla Inc and Amazon.com Inc.
The Canadian stock market also advanced, although gains were less robust owing to a pullback in the materials and telecom sectors. The financials sector gained as more of the Big 6 banks reported earnings.
On a weekly basis, the S&P 500, Nasdaq and Dow are on track to snap their longest losing streaks in decades, during which the benchmark S&P plummeted 14.1% and brought it within striking distance of being confirmed as a bear market.
At current levels, all three indexes are poised to notch their biggest weekly gains since mid-March.
“With first quarter earnings essentially over and coming in better than expected, combined with the Fed indicating that they are going to be front-end loading its rate-tightening policy and implying it may pause later in the fall, all of that has given investors reason to feel optimistic,” said Sam Stovall, chief investment strategist at CFRA Research in New York.
Upbeat guidance from retailers appeared to offset dour warnings from their peers in recent weeks.
Department store operator Macy’s Inc jumped 19.3% after raising its annual profit forecast.
Discount chains Dollar General Corp and Dollar Tree advanced by 13.7% and 21.9%, respectively, following their annual sales forecast hikes, suggesting consumers are shopping for less costly goods amid decades-high inflation.
The minutes from the Federal Open Market Committee’s (FOMC) most recent monetary policy meeting calmed fears that the U.S. central bank could turn more hawkish, a concern which has fed into market volatility in recent weeks.
“We have had 65% more daily price moves of 1% or more than the average since WW2,” Stovall said.
“If the Fed is too aggressive, they’ll choke off inflation but also choke off economic growth,” he added. “It’s like in the winter you want to tap your brakes, not slam on them, to maintain control and avoid spinning out.”
Economic data released on Thursday, including U.S. jobless claims, pending home sales and GDP, brought good news wrapped in bad, suggesting the economy is showing just enough softness to prompt a dovish pivot from the Fed by autumn.
The Toronto Stock Exchange’s S&P/TSX composite index was up 148.43 points, or 0.7%, at 20,532.18, its highest closing level since May 6. It was the fifth straight day of gains for the index, its longest winning run since March.
“A little bit of risk appetite has come back,” said Elvis Picardo, a portfolio manager at Luft Financial, iA Private Wealth. “The bank numbers were quite solid. ... Investors are comforted to see that they are still posting good numbers and they don’t seem to be gearing up for anything like a recession.”
Royal Bank of Canada and Toronto-Dominion Bank on Thursday reported second-quarter profits that beat estimates, as provisions for credit losses (PCLs) improve at most Canadian banks, while Canadian Imperial Bank of Commerce posted the lone miss on the earnings front as its PCLs rose.
Shares of Toronto-Dominion advanced 1.6%, helping to push the heavily weighted financial services sector 0.9% higher.
Consumer discretionary gained 1.8%, with Richelieu Hardware up 4.2% after brokerage CIBC upgraded the stock to “outperform.”
Technology added 1.9%, helped by a gain of 5.2% for e-commerce giant Shopify Inc, and industrials were up 1.8%.
Telecom stocks lost 0.3%. Late in Thursday’s session, news emerged that Ottawa has issued a new proposed policy directive for the telecom sector that emphasizes competition and affordability in the Internet and mobile phone markets and instructs the federal telecom regulator to improve its wholesale network access regimes. The proposed new policy directs the Canadian Radio-television and Telecommunications Commission to improve the rates that Canada’s large phone and cable companies can charge smaller internet providers for access to their broadband networks.
TSX materials stocks lost 0.7%, as gold and base metal prices held relatively steady. The TSX energy sector rose 0.4%, as crude prices climbed about 3% to a two-month high on signs of tight supply ahead of U.S. summer driving season, as the European Union (EU) wrangled with Hungary over plans to ban crude imports from Russia over its invasion of Ukraine.
OPEC+ meets on June 2 and is expected to stick to last year’s deal to raise July output targets by 432,000 barrels per day, six OPEC+ sources told Reuters, rebuffing Western calls for a faster increase to control prices.
The Dow Jones Industrial Average rose 516.91 points, or 1.61%, to 32,637.19; the S&P 500 gained 79.11 points, or 1.99%, to 4,057.84; and the Nasdaq Composite added 305.91 points, or 2.68%, to 11,740.65.
Of the 11 major indexes in the S&P 500, all but real estate ended the session up. Consumer discretionary led the gainers, rising 4.8%, with tech and financials placing and showing at 2.5% and 2.3%, respectively.
Shares of Twitter Inc jumped 6.4% on news that the social media company is suing billionaire Elon Musk for delayed disclosure of his stake in the company.
U.S.-listed shares of Alibaba Group rose 14.8% after the Chinese e-commerce company beat estimates, even as it declined to provide forward guidance in view of COVID-19 restrictions in China.
Advancing issues outnumbered declining ones on the NYSE by a 5.16-to-1 ratio; on Nasdaq, a 2.95-to-1 ratio favored advancers. The S&P 500 posted three new 52-week highs and 29 new lows; the Nasdaq Composite recorded 28 new highs and 116 new lows. Volume on U.S. exchanges was 11.43 billion shares, compared with the 13.22 billion average over the last 20 trading days.
U.S. Treasury yields edged up after the benchmark 10-year note hit a fresh six-week low. The yield on 10-year Treasury notes rose 2.3 basis points to 2.770% after falling to 2.706% early in the session.
The market has been waiting for data at the macro level to confirm slower economic growth, but micro data from corporations is providing ample evidence, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC.
“A lot of what’s happening are corporate announcements. Apple today, don’t ignore it,” Ricchiuto said.
Apple Inc plans to keep iPhone production for 2022 roughly flat at about 220 million units, Bloomberg News reported, as China’s COVID-19 curbs, global supply chain issues and cooling demand hurt smartphone makers.
Two-year Treasury yields, which typically move in step with interest rate expectations, fell 0.6 basis point to 2.496%, a sharp drop from a more than three-year high of 2.844% in early May.
Canadian government bond yields rose across a steeper curve. The 10-year was up 0.9 basis point at 2.765%, after touching on Wednesday its lowest intraday level in four weeks at 2.743%.
In domestic economic data, Canadian retail sales were unchanged in March from February, missing estimates for a 1.4% advance, as lower sales at motor vehicle and parts dealers offset gains in all other subsectors. A preliminary estimate showed that sales grew 0.8% in April.
The Bank of Canada will hike its overnight rate by half a percentage point next Wednesday, according to all 30 economists polled by Reuters, who see interest rates at least a half-point higher by year-end than predicted just one month ago.
Reuters, Globe staff
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