TORONTO — North American markets bounced back with their second best day of the year after the Federal Reserve signalled possible interest rate cuts to address trade challenges and a slowing economy.
Fed chairman Jerome Powell didn’t explicitly say what the central bank would do, but he said during a speech that it is prepared to respond “as appropriate” to the Trump administration’s trade conflicts in order to protect the U.S. economy.
“That’s helping to settle the markets down a little bit after the announcement last week that the U.S. might put tariffs on Mexico, just adding fuel to the fire of the trade concerns that already exist and I guess the increasing rhetoric between the U.S. and China on the trade front,” says Ryan Crowther, VP and portfolio manager at Franklin Bissett Investment Management.
Markets have been negative over several weeks with the TSX falling Monday to 3.9 per cent off the all-time high set April 23. The decrease has come amid anxiety about trade, uncertainty about Brexit and signs of a weakening economic backdrop, he said.
“It’s healthy for the market to recalibrate expectations, especially following we’ve had a 10-year bull market over which time it’s easier for analysts and investors to build a more glass-full types of scenarios into their valuations,” he said in an interview.
Still, he said markets are up following a strong start to the year.
The S&P/TSX composite index was up 150.35 points Tuesday at 16,166.24 for the second largest gain of the year after one in early January.
All 11 major sectors were higher, led by a 5.4 per cent increase by health care as Aurora Cannabis Inc. was up 9.5 per cent and Canopy Growth Corp. rose 5.8 per cent.
Technology moved up on the heels of a large recovery for the sector in the U.S. a day after the prospect of Department of Justice antitrust probes of Facebook, Google parent Alphabet Inc., Amazon and Apple sparked a broader-based decline.
The heavyweight financials sector gained 1.33 per cent led by Home Capital Group Inc., which was up 4.2 per cent, followed by several banks that recovered from some pressure during the earnings season.
Materials gained as metals prices continued to rise as a hedge to market volatility.
The August gold contract was up 80 cents US at US$1,328.70 an ounce and the July copper contract was up 1.9 cents at US$2.67 a pound.
The key energy sector inched higher led by a 2.5 per cent gain by shares of Husky Energy Inc.
The July crude contract was up 23 cents at US$53.48 per barrel and the July natural gas contract was up 1.3 cents at US$2.42 per mmBTU.
The Canadian dollar traded at an average of 74.55 cents US compared with an average of 74.24 cents US on Monday.
In New York, the Dow Jones industrial average was up 512.40 points at 25,332.18. The S&P 500 index was up 58.82 points at 2,803.27, while the Nasdaq composite was up 194.10 points at 7,527.12.
Markets are expecting at least one interest rate cut in the United States this year.
That could push the Bank of Canada to follow suit, said Crowther.
“It puts Canada in a position where the path of least resistance if the U.S. is to lower rates is likely for Canada to as well.”
Companies in this story: (TSX:HSE, TSX:ACB, TSX:WEED, TSX:HCG, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press