Global stocks advanced on Wednesday along with U.S. Treasury yields, as minutes from the Federal Reserve’s September meeting indicated more rate cuts, while investors awaited inflation data for further clues on the central bank’s interest rate path. The S&P 500, Dow and S&P/TSX Composite Index all closed at record highs.
Minutes from the meeting showed a “substantial majority” of U.S. Federal Reserve officials supported beginning an era of easier monetary policy with an outsized half-point rate cut, but there appeared even broader agreement that the initial move would not commit the Fed to any particular pace of rate reductions in the future.
Stocks added to gains after the minutes. The Dow Jones Industrial Average rose 431.63 points, or 1.03%, to 42,512.00, the S&P 500 rose 40.91 points, or 0.71%, to 5,792.04 and the Nasdaq Composite rose 108.70 points, or 0.60%, to 18,291.62. The S&P/TSX composite index ended up 152.39, or 0.6%, at 24,224.90, moving past the record closing high it posted on Friday.
Investors have scaled back expectations for aggressive rate cuts by the Fed after last week’s strong U.S. jobs report. They will also monitor inflation data on Thursday in the form of the consumer price index (CPI) for insight on the Fed’s rate path, while the corporate earnings season kicks off with bank earnings on Friday.
“The minutes were also further confirmation that they believe that they’ve won the fight on inflation so that [Thursday’s] CPI number shouldn’t be too much of a surprise,” said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina. “There’s an air of optimism in the market since the Friday jobs report. Investors remain optimistic on the soft-to-no landing scenario.”
After completely pricing in a cut of at least 25 bps last week, with a 35.2% chance of a second consecutive cut of 50 bps, the market is betting on a 79.4% chance of a 25 basis point cut at the Fed’s November meeting, and a 20.6% chance it will hold rates steady, CME’s FedWatch Tool showed. The expectations for a cut in November decreased slightly after the Fed minutes.
Dallas Federal Reserve Bank President Lorie Logan said she supported last month’s outsized rate cut but wants smaller reductions ahead, given “still real” upside risks to inflation and “meaningful uncertainties” over the economic outlook.
U.S. bond yields were higher in the wake of Logan’s comments and the Fed minutes, as well as an auction of 10-year notes. The yield on benchmark U.S. 10-year notes gained 3.8 basis points to 4.073% while the 2-year note yield, which typically moves in step with interest rate expectations, rose 4.3 basis points to 4.022%. The 10-year yield topped 4% for the first time in two months earlier in the week.
On the TSX, the technology sector climbed 1.7%, helped by a gain of 4.7% for the shares of electronic equipment company Celestica Inc after TD Cowen raised its target price on the stock.
Consumer discretionary added 1% and industrials ended 0.9% higher. All ten major sectors notched gains.
Among the biggest gainers was Bird Construction Inc , which jumped 11.9% after the company announced a dividend increase and released financial targets.
In contrast, shares of Alimentation Couche-Tard fell 0.8% after the convenience store operator made a revised bid for Japan’s Seven & i Holdings.
Meanwhile, it was another manic trading day in China. After earlier surging on hopes for stimulus to prop up the world’s second-largest economy, Chinese stocks have since slumped on disappointment that more isn’t on the way.
Stocks in Shanghai tumbled 6.6% for their worst loss since February 2020, when fears were rising about a virus seen in Wuhan and other cities in China. In Hong Kong, the Hang Seng index fell 1.4% after dropping more than 9% the day before, which was its worst loss since the global financial crisis of 2008.
Moves announced by China in late September fueled a rally that has since fizzled. But analysts have pointed out that a news conference on Tuesday by China’s main planning agency, the National Development and Reform Commission, was unlikely to convey much information about government spending, which is the purview of the Finance Ministry.
That ministry is due to hold a briefing on Saturday that could provide further details on planned government outlays that so far have fallen short of what investors have been hoping for.
The Shanghai Composite is still up 9.5% for the year so far, while Hong Kong’s index is up 21.1%.
Indexes were more stable elsewhere around the world on Wednesday and rose 0.9% in Japan and 1% in Germany.
Reuters, The Associated Press, Globe staff