Materials push S&P/TSX composite to another high, U.S. markets also hit records

TORONTO – Canada’s main stock index moved further into record territory Monday on strength in the basic materials sector, while U.S. markets also reached new highs.

Brianne Gardner, senior wealth manager of Velocity Investment Partners at Raymond James Ltd., said markets were starting the year off on a positive note.

The strength in basic materials sector on was the back of a move higher in gold prices. The February gold contract was up US$113.80 at US$4,614.70 an ounce.

“We still think there’s upside for materials, gold and silver for sure, but I do think that is something we’re watching as things have gotten a little bit elevated. So we might want to be a little bit cautious there,” Gardner said.

The S&P/TSX composite index was up 261.77 points at 32,874.70.

In New York, the Dow Jones industrial average was up 86.13 points at 49,590.20. The S&P 500 index was up 10.99 points at 6,977.27, while the Nasdaq composite was up 62.56 points at 23,733.90. The S&P 500 tacked 0.2 per cent onto its prior all-time high set on Friday.

Questions among investors once again swirled however over whether the U.S. Federal Reserve may be on the path to less independence in setting interest rates to keep inflation under control.

Over the weekend, Fed chair Jerome Powell said the U.S. Department of Justice subpoenaed the Fed and threatened a criminal indictment over his testimony about renovations at its headquarters.

“Anything that hints at pressure on the Fed’s independence tends to make markets step back,” Gardner said.

“We’re seeing Jerome Powell set to step down in May, which will come up quickly. Attention has shifted to whether the next Fed chair will remain independent, especially after his disclosure of some of this unprecedented criminal probe. That does raise a lot of political concerns,” Gardner said.

The Fed has been locked in a feud with Trump, who has loudly called for lower interest rates to make borrowing cheaper for U.S. households and companies and give the economy a boost. The Fed did lower its main interest rate three times last year and indicated more cuts may arrive this year, but it’s moved deliberately enough that Trump has nicknamed Powell “Too Late.”

The Fed has traditionally operated separately from the rest of Washington, making its decisions without having to bend to political whims. Such independence, the thinking goes, gives it the freedom to keep interest rates high when necessary to drive down high inflation, even if it slows the economy and frustrates politicians looking to please voters.

“I do think it is still important for the markets to maintain that Fed independence and not be swayed by political views or political decisions on how the U.S. economy should be run,” Gardner said.

Elsewhere in the U.S. stock market, shares of credit card companies dropped Monday after Trump threatened moves that could eat into their profits.

Synchrony Financial fell 8.4 per cent, Capital One Financial sank 6.4 per cent and American Express dropped 4.3 per cent. They weakened after Trump said he wanted to put a 10 per cent cap on credit card interest rates for a year.

Gardner said that if the proposed credit card rate cap does go through, “it would impact consumer financing and potentially bank earnings over the longer run.”