TORONTO – Canada’s main stock index gained more than one per cent on Thursday, while U.S. stock markets rallied to new records a day after the U.S. Federal Reserve cut its key interest rate.
The delayed rally followed the Fed’s first interest rate cut since its hiking campaign to fight inflation. The central bank cut its key rate by half a percentage point after weeks of speculation over whether the larger cut was in the cards.
Markets were reassured by the Fed’s apparent commitment to preserving a soft landing, said Tamsin Wilding, principal and portfolio manager for fixed income at Leith Wheeler Investment Counsel Ltd.
“The market sort of coalesced around that narrative today,” she said.
In New York, both the Dow and the S&P 500 hit new records.
The Dow Jones industrial average was up 522.09 points, or 1.3 per cent, at 42,025.19. The S&P 500 index was up 95.38 points, or 1.7 per cent, at 5,713.64, while the Nasdaq composite was up 440.68 points, or 2.5 per cent, at 18,013.98.
The S&P/TSX composite index closed up 273.67 points at 23,866.27.
Fed chair Jerome Powell had a difficult balance to strike, said Wilding, to show market watchers that the outsized cut was a display of confidence in the economy and not concern.
“The U.S. economy is in a good place,” Powell said Wednesday, “and our decision today is designed to keep it there.”
Wilding said Powell’s communication around the decision was “spot on.”
“It wasn’t an easy needle to thread, in terms of explaining why they were cutting 50 and yet you still have strong economic conditions,” she said.
What likely helped reassure investors was the revised projection from the Fed for its key interest rate over the coming months and into 2025, said Wilding. It was actually revised slightly lower, she said, showing a steady recalibration of rates but not an aggressive campaign.
The Fed said it sees another half-percentage point in cuts this year, one per cent in 2025 and half a percentage point in 2026.
“I think the market did take notice of that,” said Wilding, adding it helped to somewhat offset the more aggressive cut.
With this much-anticipated milestone in the rearview mirror, Wilding said eyes will be on the labour market data, which was the source of concern over the past couple of months after it came in weaker than expected.
“The labour market is still front of mind, and I think that’s going to dictate the pace of easing from here,” she said.
The Canadian dollar traded for 73.73 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up US$1.28 at US$71.16 per barrel and the October natural gas contract was up seven cents at US$2.35 per mmBTU.
The December gold contract was up US$16.00 at US$2,614.60 an ounce and the December copper contract was up five cents at US$4.35 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
