TORONTO — North American stock markets rose, with U.S. markets hitting all-time highs, after the chairman of the U.S. Federal Reserve confirmed the central bank will cut interest rates because of a weakened economy and rising trade tensions.
In testimony to Congress, Jerome Powell suggested that rates will be cut for the first time in a decade later this month because “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
That was music to the ears of investors who had anticipated cuts until a strong jobs report last Friday cast some doubts about its timing.
“I think that further cements this idea that there’s going to be some cut,” said Mike Archibald, Associate Portfolio Manager with AGF Investments Inc.
He said the consensus is for a 25 basis point decrease in a couple of weeks.
American markets responded by hitting all-time highs in early trading before falling later in the day.
In New York, the Dow Jones industrial average closed up 76.71 points at 26,860.20 after peaking at 26,983.45. The S&P 500 index surpassed 3,000 points for the first time and closed up 13.44 points at 2,993.07, while the Nasdaq composite was up 60.80 points at 8,202.53 after reaching 8,228.60.
Archibald said Powell’s comments weren’t surprising since the Fed tends to follow markets, which had viewed him cutting rates for a very long time.
He said market commentary will now shift from easing to whether the central bank is able to engineer a soft landing rather than a hard landing and a recession.
“To my eye this still doesn’t look like there’s a recession out there but when the Fed starts to cut they usually don’t just cut once.”
The S&P/TSX composite index closed up 18.08 points at 16,563.29. It hit an intraday peak of 16,545.21, less than 31 points below April’s record high.
Canada’s main stock index was helped by the energy and materials sectors as the price of crude hit a seven-week high and gold gained ground.
The August crude contract was up US$2.60 at US$60.43 per barrel and the August natural gas contract was up 1.9 cents at US$2.44 per mmBTU.
The August gold contract was up US$12 at US$1,412.50 an ounce and the September copper contract was up 6.9 cents at US$2.69 a pound.
The commodities were helped by a weaker U.S. dollar with the Canadian dollar trading for an average of 76.38 cents US compared with an average of 76.18 cents US on Tuesday.
The loonie was also helped by comments from the Bank of Canada that the Canadian economy would accelerate next year in contrast with the United States.
“To the extent that the U.S. is going to bring rates down and the Bank of Canada is not going to do it at least in the short-term is reason for the loonie to continue to outperform here in the near term,” said Archibald.
Crude prices were supported by a significant reduction in overall U.S. stockpiles and major oil producers evacuating rigs in the Gulf of Mexico before an expected storm.
The energy sector was led higher by a broad-based increase with Crescent Point Energy Corp. shares rising 9.3 per cent, followed by Encana Corp. at 3.1 per cent.
Kinross Gold Corp. and Barrick Gold Corp. were among the big gainers among miners.
Health care lost the most ground with CannTrust Holdings Inc. dropping another 12.9 per cent after the Ontario Cannabis Store said it has removed certain CannTrust products from its online store and from distribution to physical outlets until Health Canada completes its investigation involving pot cultivation in unlicensed rooms.
Industrials fell as Canadian Pacific Railway and CN Rail dropped on an analyst downgrade on expectation of weaker volumes and tougher comparables in the second and third quarters.
The heavyweight financials sector dropped as interest rate cuts would be negative for the profitability and lending of banks.