Strength in the energy sector helped Canada’s main stock index gain ground Tuesday amid losses in the financial sector, while U.S. markets rallied on interest rate optimism ahead of the last rate hike of the year, with the Nasdaq Composite gaining more than 1 percent.
The S&P/TSX composite index rose 3.76 points to 20,023.46.
In New York, the Dow Jones Industrial Average rose 103.60 points to 34.108.64. The S&P 500 gained 29.09 points to 4,019.65 and the Nasdaq Composite gained 113.07 points to 11,256.81.
Scott Guitard, senior vice president and portfolio manager at Fiduciary Trust Canada, said Tuesday’s U.S. inflation data really set the tone for the market.
Inflation came in at 7.1 percent in November, down from 7.7 percent a month earlier and slightly below investors’ expectations.
As a result, interest rate-sensitive stocks such as technology stocks have performed strongly, as positive news on inflation will only reinforce expectations that the central bank will ease into raising interest rates until 2023, Guitard said.
“(Inflation) is lighter than what we saw last month, so that’s positive. But more importantly, it’s lighter than expected,” Guitard said.
“So that’s giving the market an extra boost, and I think it’s allowing the Fed to lower rates starting tomorrow.”
The Fed is widely expected to raise its key interest rate by 50 basis points on Wednesday, echoing a move by the Bank of Canada last week, Guitard said. But while the numbers themselves may not be a surprise, investors will be watching the Fed’s comments to see what happens next, he said.
“I think everyone will listen carefully to the comments tomorrow and the next few days to set the tone for the first few quarters of next year.”
Bank of Canada Governor Tiff Macklem warned in a speech on Monday that inflation would not be easy to fix in 2023, trying to temper expectations.
“Even though inflation has slowed, they’re more concerned with prices than growth at the moment and tend to be overly tightening,” Guitard said. “And I think we can see similar language from the Fed. They were behind the curve to begin with, they Will have to continue to fight inflation, regardless of the fact that inflation appears to have peaked.”
The Canadian dollar traded at 73.82 cents US, compared with 73.22 cents US on Monday.
The January crude contract rose $2.22 to $75.39 a barrel and the January natural gas contract rose 35 cents to $6.94 per mmBTU (million British thermal units).
The February gold contract was up $33.20 at $1,825.50 an ounce and the March copper contract was up 4 cents at $3.84 a pound.
The Canadian Press report was first published on December 13, 2022.