Stocks bounced back on Thursday as easing oil prices, dropping Treasury yields and solid U.S. labour data helped markets move beyond the Federal Reserve’s first interest rate hike in more than three years.
All three major U.S. stock indexes closed sharply higher, driven by a broad, tech-led rally that put the Nasdaq out front. It was the largest gain for Canada’s main stock index since Sept. 3.
“We’re seeing interest in the areas of the market that have been hit hard in anticipation of this Fed rate hike,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “And people sort of stepping in, doing a little bit of buying on the pullback.”
Crude prices dropped, touching a one-week low after supply disruption fears were calmed by reports of Saudi oil moving through Oman. Oil pared losses as the Middle East remained tense. Energy prices have soared since the onset of the U.S.-Israeli war against Iran, feeding into broader global inflationary pressures.
On Wednesday, Fed policy makers voted unanimously to raise the Fed funds target rate for the first time since July 2023. The central bank’s statement said the Fed was dedicated to bringing about a “timelier return” to its 2% inflation goal, setting the table for more tightening this year.
“The big kicker from the equity-market perspective is that the hawkish tone was a bit more than what they were expecting and now we are settling in and investors are starting to say, ’well, maybe that was more talk than anything’. If you think about the backdrop from a fundamental perspective, it’s still very strong and that’s providing the overriding sense of optimism right now,” said James St. Aubin, chief investment officer at Ocean Park Asset Management.
Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky, said the market “is a bit relieved at the Fed’s coherence in that they all voted in the same way. Fed Chair Warsh re-emphasized the Fed’s independence.”
Financial markets are currently pricing in a 53.1% likelihood of another 25-basis-point rate hike at the Fed’s next meeting in October, up from 27.2% a week ago, according to CME’s FedWatch tool.
Warsh stated at his press conference on Wednesday that the US economy is strong, and ensuring price stability need not harm the job market, a view sustained by the Labor Department’s weekly jobless claims report, which showed initial claims dipping to near-1969 lows.
The CBOE Market Volatility Index, often called “the fear index,” touched its lowest level in over a week, moving in concert with easing crude prices.
“When you have an oil shock this lengthy, it’s bound to start to seep in prices all across the economy. It’s really the only major headwind facing the global economy right now,” Mayfield added. “And to get any sort of relief or resolve there is a tailwind for consumers, it’s a tailwind for corporates, and it allows the Fed to be less hawkish.”
The Dow Jones Industrial Average rose 317.95 points, or 0.62%, to 51,779.85, the S&P 500 gained 85.93 points, or 1.14%, to 7,637.74 and the Nasdaq Composite gained 439.87 points, or 1.69%, to 26,418.30.
The 10-year U.S. Treasury yield, which rose above 5.00% for the first time since 2023 earlier this week, was down 6.1 basis points by late afternoon, its biggest drop since August 25, at 4.943%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, shed 4.4 basis points to 4.683%.
Canadian bond yields fell at an even faster clip. The 10-year yield was down 12 basis points at 3.821%; the five-year yield fell by a similar degree. Bond yields and prices move inversely.
The S&P/TSX Composite Index ended up 382.99 points, or 1.1%, at 35,874.26, after posting on Wednesday its lowest closing level in nearly seven weeks.
The materials group, which includes metal mining shares, rose 3.4% as gold rebounded from a near six-week low in the previous session. Heavily weighted financials added 0.7% and utilities ended 1.2% higher.
Of the 10 major TSX sectors, only consumer discretionary ended lower. It fell 0.6%, weighed by a 2.3% decline in the shares of Restaurant Brands International.
On Wall Street, tech led the percentage gainers among 11 major sectors of the S&P 500. Financials and consumer staples were the only two to close lower, showing only nominal losses on the day. Gold and silver miners and chips were among the clear outperformers, both advancing more than 3%.
U.S. homebuilders gained 1.1% after housing data showed single-family housing starts and pending home sales increased last month.
Interest rate-sensitive U.S. banks stabilized after Wednesday’s 2.3% selloff. The index ended the session up 0.2%.
Crypto-linked stocks rose after the US Securities and Exchange Commission unveiled a five-year exemption for tokenized stock trading. Circle Internet Group and Robinhood rose 5.8% and 5.2%, respectively, while Coinbase advanced 5.8%.
CoreWeave fell 4.2% after it announced plans to raise capital via stock and convertible bond offerings.
Advancing issues outnumbered decliners by a 2.38-to-1 ratio on the NYSE. There were 112 new highs and 164 new lows on the NYSE. On the Nasdaq, 3,274 stocks rose and 1,483 fell as advancing issues outnumbered decliners by a 2.21-to-1 ratio. The S&P 500 posted 12 new 52-week highs and 20 new lows while the Nasdaq Composite recorded 60 new highs and 127 new lows.
Volume on U.S. exchanges was 17.57 billion shares, compared with the 15.37 billion average for the full session over the last 20 trading days.
Reuters, Globe staff