The benchmark S&P 500 closed higher on Wednesday after briefly crossing the 3,000-point mark for the first time following dovish remarks from Federal Reserve Chairman Jerome Powell boosting the case for an interest rate cut this month.
The Dow Jones Industrial Average rose 76.71 points, or 0.29 per cent, to 26,860.2, the S&P 500 gained 13.43 points, or 0.45 per cent, to 2,993.06 and the Nasdaq Composite added 60.80 points, or 0.75 per cent, to 8,202.53.
The Nasdaq and the Dow also scaled all-time highs after Mr. Powell, who gave semi-annual testimony on monetary policy before the U.S. House of Representatives Financial Services Committee, said the central bank stands ready to “act as appropriate” to support record U.S. economic growth.
Stocks briefly added to gains following minutes from the last meeting of Fed policymakers. The minutes from the June 18-19 meeting showed that many Fed officials thought more stimulus would be needed soon if risks to the U.S. economy did not let up.
Amazon.com, up 1.6 per cent, Microsoft Corp. and Apple Inc., both up 1 per cent, were among the biggest boosts to the indexes.
Mr. Powell also pointed to economic risks, including persistently weak inflation, slowing global growth and a downturn in business investment.
“The recent rally is speculation on the Fed lowering interest rates to continue to perpetuate this amazing recovery we’ve had. In Powell’s testimony today, he referenced that quite often – that the Fed’s job is to perpetuate this recovery by achieving full employment and controlling inflation, and they’ve done both,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“I’d say that’s what’s dominated the market over the past month or so.”
The S&P 500 index of financial shares, which tend to benefit in a higher interest rate environment, retreated 0.3 per cent after Mr. Powell’s comments.
Alluding to the strong jobs data that tempered hopes of a sharp rate cut at the end of the month, Powell said the report did not fundamentally change the central bank’s outlook and that there is important economic data before the meeting.
Traders raised the chances of a 50 basis point reduction to 23 per cent following the comments, according to the CME Group’s FedWatch tool. They had nearly abandoned hopes of an aggressive reduction while still expecting the first U.S. rate cut since the financial crisis at the July 30-31 meeting.
Eight of the 11 major S&P sectors were higher, with energy , technology and communication services leading the gainers.
Energy stocks were up 1.4 per cent, benefiting from a jump in oil prices as U.S. crude inventories shrank more than expected and major producers evacuated rigs in the Gulf of Mexico ahead of an expected storm.
In Toronto, strength in the energy sector helped Canada’s main stock index gain ground in midday trading as the price of oil also moved higher.
On Bay Street, investors also weighed the Bank of Canada’s latest policy announcement, which kept rates on hold for the time being.
The S&P/TSX composite index unofficially closed up 18.08 points, or 0.11 per cent, at 16,563.29.
Energy stocks were up 2.2 per cent with Crescent Point up 9.3 per cent, Whitecap Resources up 7.3 per cent, and Gran Tierra up 6.2 per cent.
Oil prices rose 4.5 per cent a barrel on Wednesday to their highest level in more than a month after U.S. crude inventories shrank and as major producers cut nearly a third of offshore Gulf of Mexico production ahead of an expected storm.
Brent crude futures settled at US$67.01 a barrel, up US$2.85, or 4.44 per cent. U.S. West Texas Intermediate (WTI) crude futures settled at US$60.43 a barrel, climbing US$2.60, or 4.50 per cent. Both benchmarks hit their highest prices since late-May.
Materials stocks gained 1 per cent, consumer staples stocks rose 1 per cent, and utilities gained 0.4 per cent. Discretionary, telecom services, financials, tech and industrials were all slightly lower.
Bombardier fell 0.7 per cent after confirming that its rail-car division will cut 550 workers at its Thunder Bay plant in November.
On the domestic front, the loonie lost about a half a cent but then rebounded slightly as the Bank of Canada left its overnight rate unchanged, saying positive signs in the Canadian economy were mostly offset by global trade tensions, including China’s restrictions on Canadian canola and meat.
A healthy labour market and solid business and consumer confidence led the central bank to give a slight bump to its 2019 growth forecast, which now stands at 1.3 per cent, up from the 1.2 per cent in its April projection.
The overnight rate remains at 1.75 per cent, where it has stayed since the Bank announced an interest rate increase in October 2018.
The Canadian dollar traded for 76.42 cents US compared with an average of 76.18 cents US on Tuesday.
Reuters