Canada’s main stock index rallied on Wednesday to its highest closing level in more than three weeks, as a smaller-than-expected interest rate hike by the Bank of Canada fueled hopes the central bank is nearing the end of its tightening cycle.
The S&P/TSX composite index ended up 182.75 points, or nearly 1%, at 19,279.76, its highest closing level since Oct. 4.
“This bear market rally was about to run out of steam, but the Bank of Canada had other plans,” Edward Moya, senior market analyst at OANDA in New York, said in a note.
The BoC raised its benchmark rate by half a percentage point, coming up short on calls for another 75 basis points move, and said it was getting closer to the end of its historic tightening campaign.
By contrast, the S&P 500 ended a three-day winning streak on Wednesday, closing in negative territory as gloomy earnings guidance added to growing fears of a global economic slowdown.
Those fears, along with the smaller-than-expected interest rate hike from the Bank of Canada, continued to feed hopes that the Fed might consider easing the size of its rate hikes after its Nov. 1-2 policy meeting. In a rare move, Canada’s central bank had a positive influence on the U.S. stock market, as well as on U.S. Treasuries, where there was downward pressure on yields after the rate decision.
“Central banks are starting to blink,” said Paul Kim, Chief Executive Officer at Simplify ETFs in New York. “It’s part of the larger trend and supports the pivot narrative.”
The Canadian dollar immediately tumbled about a third of a cent on the Bank of Canada move, although it quickly retraced those losses amid broad-based weakness in the U.S. dollar against major currencies.
Canadian bond yields - which were already softer this morning prior to the rate announcement - sunk further. By afternoon, the two-year government of Canada bond yield was down 26 basis points to 3.89%. The yield on the five-year bond - which heavily influences fixed mortgage rates - was down 23 basis points to 3.43%.
The bank now expects 0.9 per cent annual GDP growth next year, down from its previous estimate of 1.8 per cent. While it avoided using the word “recession,” the bank said that an economic contraction is increasingly likely.
The next Bank of Canada rate decision is scheduled for Dec. 7. Money markets are now pricing in a 90% chance of a 25 basis point hike at that time, and less than 10% odds of another 50 basis points, according to Refinitiv Eikon data.
The Toronto market’s energy group rose 1.8% as U.S. crude oil futures settled 3% higher at $87.91 a barrel. The materials group, which includes precious and base metals miners and fertilizer companies, added 1.8%, while industrials ended 1.3% higher.
Shares of Rogers Communications Inc jumped 5.8%, while Shaw Communications Inc shares were up 7.2% as investors bet that Canada is likely to approve Rogers Communications’ bid for Shaw.
The S&P 500 and the Nasdaq ended in negative territory, dragged lower by market-leading tech and tech-adjacent companies following results from Microsoft and Alphabet. The blue-chip Dow eked out a nominal gain.
Microsoft and Alphabet shares tanked, falling 7.7% and 9.1%, respectively.
Those downbeat reports brought worries over an impending global economic downturn from simmer to boil, and spread to other high profile megacaps.
Sales of newly constructed U.S. homes plunged in September while mortgage rates hit their highest level in more than two decades, adding to the growing pile of data suggesting a softening economic landscape.
The Dow Jones Industrial Average rose 2.37 points, or 0.01%, to 31,839.11, the S&P 500 lost 28.51 points, or 0.74%, to 3,830.6 and the Nasdaq Composite dropped 228.12 points, or 2.04%, to 10,970.99.
Five of the 11 major sectors of the S&P 500 ended the session in the red, with communications services and tech were suffering the largest percentage losses.
Third quarter earnings season has shifted into high gear, with 170 of the companies in the S&P 500 having reported. Of those, 75% have delivered consensus-beating results, according to Refinitiv.
But they have a low bar to clear. Analysts see aggregate S&P 500 earnings growth of 2.3%, down from 4.5% at the beginning of the month, per Refinitiv.
“There have been pockets of promising corporate earnings announcements this quarter,” said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. “I don’t think it’s necessarily a fait accompli that we’re going to continue to see earnings misses across the board.”
Boeing Co reported a deeper than expected third quarter loss, sending its shares sliding 8.8%.
On the plus side, Visa Inc rose 4.6% in the wake of the consumer credit company’s profit beat.
Facebook parent Meta Inc shares fell more than 12% in after-hours trading after posting results.
Advancing issues outnumbered declining ones on the NYSE by a 1.71-to-1 ratio; on Nasdaq, a 1.41-to-1 ratio favored advancers. The S&P 500 posted 25 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 113 new highs and 77 new lows. Volume on U.S. exchanges was 12.26 billion shares, compared with the 11.60 billion average for the full session over the last 20 trading days.
Reuters, Globe staff
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.