TORONTO – A report showing that U.S. inflation slowed a bit last month caused North American stock markets to rally strongly into the weekend.
The S&P/TSX composite index closed up 216.40 points to 20,748.58, its highest close in more than a month.
American stock markets snapped seven and eight-week losing streaks, the longest in almost a century as the country started a long weekend with markets closed on Monday.
In New York, the Dow Jones industrial average was up 575.77 points at 33,212.96. The S&P 500 index was up 100.40 points at 4,158.24, while the Nasdaq composite was up 390.48 points or 3.3 per cent at 12,131.13.
The catalyst for the run-up of markets over the last two days was the minutes from the latest U.S. Federal Reserve meeting. One Fed member suggested interest rates could rise by 50 basis points two more times before a pause is taken.
But it was morning inflation numbers that seemed to have propelled markets higher Friday.
The report said core inflation, something watched by the Fed, rose 4.9 per cent in April, down from the 5.2 per cent in March.
“So it seems like if you read between the lines that we hit some sort of peak inflation,” said Allan Small, senior investment adviser at IA Private Wealth.
He said it’s clear the economy is slowing as central banks raise interest rates to tackle red hot inflation.
While central banks are trying to lower inflation by controlling demand, Small said it’s supply challenges from the Ukraine war and supply chain bottlenecks from the closure of Chinese cities to address pandemic infections that have caused the bigger problem.
“So I worry that if the Fed were to raise rates too much too quickly, that it could take the economy down significantly,” he said in an interview.
“Now I don’t want to say recession, but that’s what the market is saying. It’s worried that the Fed will raise too fast, and when you get data like we did this morning, which says OK, maybe the Fed doesn’t have to raise as quickly . . . that’s a lot better than what they were saying just a few months ago.”
Nine of the 11 major sectors on the TSX were higher in a broad rally led by technology.
That sector, which has been beaten down of late, climbed 2.4 per cent with Hut 8 Mining Corp. up 8.1 per cent, BlackBerry Ltd. increased 7.6 per cent and Shopify Inc. 4.6 per cent higher.
A similar situation was seen in the U.S., where Small said “tech drives the bus.”
But Small wondered if the rally can continue so the Nasdaq can make back at least half of the hefty losses this year after falling as much as about 30 per cent. It was down 22.5 per cent as of Friday afternoon.
“Overall I think all eyes are focused on tech and I think that’s the sector that’s going to lead the U.S. out of the bear market that it’s in right now.”
But he said the question is how much of a recovery do markets get.
“Is this a dead cat bounce or is this a sustainable bounce that will take us back and make back much of the losses that we had over the first five months of the year.”
Energy increased 1.7 per cent as crude oil prices continued to march higher, helping shares of Imperial Oil to increase three per cent.
The July crude oil contract was up 98 cents at US$115.07 per barrel and the July natural gas contract was down 16.8 cents at US$8.73 per mmBTU.
The Canadian dollar traded for 78.51 cents US compared with 78.17 cents US on Thursday.
The heavyweight financials sector increased 1.3 per cent after the National Bank of Canada posted quarterly results that beat expectations and raised its dividend like most other banks did this quarter.
Its shares were up 2.3 per cent on the day.
Materials moved into positive territory late in the day on higher metals prices.
The August gold contract was up US$3.40 at US$1,857.30 an ounce and the July copper contract was up 4.8 cents at US$4.31 a pound.
The big laggard was health care. It sank 4.7 per cent as Aurora Cannabis Inc. plunged 38 per cent and Canopy Growth Crop. lost 13.6 per cent.
Aurora shares fell after the Edmonton marijuana company announced it sold US$150 million worth of shares as part of an amendment to a previously announced bought deal financing.
Canopy shares fell after it reported that quarterly revenues dropped 25 per cent even as its net loss was smaller.
This report by The Canadian Press was first published May 27, 2022.
Companies in this story: (TSX:IMO, TSX:SHOP, TSX:HUT, TSX:BB, TSX:NA, TSX:ACB, TSX:WEED, TSX:GSPTSE, TSX:CADUSD=X)
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