Wall Street’s three benchmarks ended higher on Monday as investors returned to megacap growth stocks, helping both the S&P 500 and Nasdaq Composite recover from their worst weekly performance since April. Canada’s main stock index also rose, with the real estate and utilities sectors leading a broad-based rally ahead of an expected interest rate cut this week by the Bank of Canada.
Megacaps Alphabet, Meta Platforms and Tesla all advanced between 2.2% and 5.1% after being major drags on the market last week.
Nvidia also rose 4.8% after Reuters reported the artificial intelligence chip leader was working on a version of its new flagship AI chips for the China market that would be compliant with current U.S. export controls.
The Information Technology index climbed 2%, topping sectoral gainers and snapping a four-day losing streak.
“We think this move today probably has more to do with a rebound from the selling that occurred last week than anything else,” said Jason Pride, chief of investment strategy & research at Glenmede.
Chief among the other factors on traders’ minds was a reexamination of the state of the presidential race after U.S. President Joe Biden announced his withdrawal and endorsed Vice President Kamala Harris’ candidacy for the November election on Sunday.
Biden’s exit could prompt investors to unwind trades on bets that a victory for Republican Trump would increase U.S. fiscal and inflationary pressures. But some analysts said markets could benefit from an increased chance of a divided government under the next administration.
Online betting site PredictIt showed pricing for a Donald Trump victory slipped 4 cents to 60 cents, while climbing 12 cents for a Harris win to 39 cents.
Trump-linked stocks were mixed on Monday, with Trump Media & Technology Group dropping 0.8%, while software firm Phunware gained 4%.
Having digested the news of Biden’s withdrawal, investors will now be looking for answers to key questions including who will join Harris on the Democratic presidential ticket and to what degree, if any, the vice president will deviate from the platform which Biden was headlining.
This element of uncertainty is present alongside traders’ angst over quarterly earnings, including from two of the so-called Magnificent Seven companies - Alphabet and Tesla - on deck this week.
The results will test whether the recent rally in top-tier high-momentum stocks is tenable and if a move to underperforming sectors will continue.
“We’re seeing the market begin to price in a little bit a faster set of rate cuts, and that is leading to a bit of a shift in leadership to favor smaller-cap stocks and to deviate from the focus on the largest tech companies,” said Glenmede’s Pride.
“Obviously today looks a little bit different to that, but it’s still a trend in the background.”
The S&P 500 gained 59.41 points, or 1.08%, at 5,564.41 points, while the Nasdaq Composite climbed 280.63 points, or 1.58%, to 18,007.57. The Dow Jones Industrial Average rose 127.91 points, or 0.32%, to 40,415.44.
The S&P/TSX composite index ended up 182.26 points, or 0.8%, at 22,872.65, moving back in reach of the record closing high it touched last Tuesday at 22,995.39.
The BoC is widely expected to cut its benchmark rate by 25 basis points to 4.50% on Wednesday, its second cut in as many months, after recent data showed inflation cooling.
“Expectations seem to be pretty high for a small interest rate cut this week and so as a result I think investors are feeling a little more encouraged that the economy is capable of holding its own,” said Michael Sprung, president at Sprung Investment Management.
“We are still in a very tumultuous period,” Sprung said. “I personally don’t believe that inflation is entirely beaten yet ... so I think we are going to have mixed signals for the rest of the year and the U.S. is election is part of that.”
The TSX real estate and utilities sectors, which are dominated by high dividend paying stocks that could particularly benefit from lower interest rates, rose nearly 2% and 1.3%, respectively.
Heavily weighted financials added 0.9%, energy was up 0.8% and technology ended nearly 1% higher. Materials was the only major sector not to notch gains.
Shares of Sleep Country Canada Holdings Inc were a standout, jumping 27.1% after Fairfax Financial agreed to buy the retailer.
In contrast, Air Canada shares fell 2.5% after the company cut its full-year core profit forecast.
Among U.S. stock movers, cybersecurity firm CrowdStrike slumped 13.5%, extending losses after a software update from the company sparked Friday’s global tech outage.
Delta Air Lines dropped 3.5% after canceling over 600 flights as it struggled to restore operations after the outage.
Verizon Communications fell 6.1% after a second-quarter revenue miss.
Mattel Inc jumped 15.1% after Reuters reported the toy maker had been approached by buyout firm L Catterton with an acquisition offer.
Volume on U.S. exchanges was 10.95 billion shares, compared with the 11.37 billion average for the full session over the last 20 trading days.
Reuters, Globe staff