A report showing that slowing inflation propelled North American stock markets over the weekend

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TORONTO – A report showing that inflation in the United States eased slightly last month prompted a strong rally in North American stock markets over the weekend.

The S&P/TSX Composite Index closed up 216.40 points at 20,748.58, its highest close in more than a month.

U.S. stock markets recorded seven- and eight-week losing streaks, the longest in nearly a century as the country entered a long weekend with markets closed on Monday.

In New York, the Dow Jones industrial average rose 575.77 points to 33,212.96. The S&P 500 index rose 100.40 points to 4,158.24, while the Nasdaq composite rose 390.48 points or 3.3% to 12,131.13.

The catalyst for the rise in markets over the past two days has been the minutes of the last meeting of the US Federal Reserve. A member of the Fed suggested that interest rates could rise by 50 basis points two more times before a pause is taken.

But it was the morning inflation numbers that appeared to have propelled markets higher on Friday.

The report said core inflation, monitored by the Fed, rose to 4.9% in April from 5.2% in March.

“So it looks like if you read between the lines, we’ve hit some sort of inflation peak,” said Allan Small, senior investment adviser at IA Private Wealth.

He said it was clear the economy was slowing as central banks raised interest rates to tackle searing inflation.

As central banks try to reduce inflation by controlling demand, Small said it’s the supply problems of the war in Ukraine and supply chain bottlenecks due to the closure of cities. Chinese to deal with the pandemic infections that have caused the biggest problem.

“So I’m concerned that if the Fed were to raise rates too quickly, it could bring the economy down significantly,” he said in an interview.

“Now, I don’t want to talk about a recession, but that’s what the market is saying. He’s concerned that the Fed is going up too fast, and when you get data like we did this morning that says OK, maybe the Fed doesn’t have to go up that fast . . . it’s much better than what they were saying just a few months ago.

Nine of the TSX’s 11 major sectors were up in a broad tech-led rally.

This sector, which has been beaten lately, climbed 2.4% with Hut 8 Mining Corp. up 8.1%, BlackBerry Ltd. up 7.6% and Shopify Inc. up 4.6%.

A similar situation has been seen in the United States, where Small said “technology drives the bus”.

But Small wondered if the rally could continue so the Nasdaq could recoup at least half of this year’s heavy losses after falling about 30%. It was down 22.5% on Friday afternoon.

“Overall, I think all eyes are on technology and I think that’s the sector that’s going to lead the United States out of the bear market it’s in right now.”

But he said the question is how well the markets get a rally.

“Is this a dead cat rebound or is this a sustainable rebound that will bring us back and make up for a lot of the losses we’ve had in the first five months of the year.”

Energy rose 1.7% as crude oil prices continued to climb, helping Imperial Oil shares rise 3%.

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 was trading at 78.51 cents US versus 78.17 cents US on Thursday.

The heavyweight in the financial sector rose 1.3% after National Bank of Canada released better-than-expected quarterly results and increased its dividend like most other banks did this quarter.

Its shares rose 2.3% on the day.

Materials moved into positive territory late in the day on the back of rising metal prices.

The August gold contract was up US$3.40 at US$1,857.30 per ounce and the July copper contract was up 4.8 cents at US$4.31 per pound .

The big laggard was health care. It fell 4.7% as Aurora Cannabis Inc. fell 38% and Canopy Growth Crop. lost 13.6%.

Aurora shares fell after the Edmonton-based marijuana company announced it had sold US$150 million worth of stock in a previously announced bought deal financing amendment.

Canopy shares fell after announcing that quarterly revenue fell 25% even as its net loss was lower.

This report from The Canadian Press was first published on 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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