A rally in tech megacaps drove the stock market higher, with traders assessing economic data that suggest the Federal Reserve still has a path to a soft landing — with officials set to further downshift their rate hikes next week.
The S&P 500 headed toward its highest since early December. Tesla Inc. led gains in the tech-heavy Nasdaq 100, with Elon Musk teasing potential for the carmaker to produce 2 million vehicles this year. International Business Machines Corp. weighed on the Dow Jones Industrial Average as its cash flow miss overshadowed a profit beat.
The U.S. economy grew faster than forecast into the end of 2022, but there were signs of slowing underlying demand as the steepest rate hikes in decades threaten growth this year. Sales of new homes rose for a third month in December, wrapping up an otherwise disappointing year in which soaring borrowing costs stifled demand and weighed on the economy.
Comments:
Fawad Razaqzada, market analyst at City Index and FOREX.com:
“The weaker GDP print compared to the previous reading means the economy is slowing, but the above-forecast number will ease recession fears at the same time. They call this the ‘goldilocks’ scenario. It should be positive for risk assets, I would imagine, and judging by the reaction post the data, that’s how it is proving to be so far.”
Ian Lyngen, the head of U.S. rates strategy at BMO Capital Markets:
“Overall, it was a solid round of data that is consistent with the Fed continuing on with the steady quarter-point hikes at the next 2-3 meetings and then retaining a restrictive policy stance throughout the year.”
Jeffrey Roach, chief economist at LPL Financial:
“The Q4 GDP report will likely reignite conversations about the economy sticking a soft landing. Given the softer inflation data, the Fed will likely downshift the pace of rate hikes to 0.25 per cent at next week’s meeting. However, other recession indicators are flashing red so upcoming monthly data, especially on the labor market, will be key for investors.”
Bill Adams, chief economist for Comerica Bank:
“A slowing trend in real GDP — and more importantly, slowing inflation — is enough for the Fed to reduce the size of their rate hike at next Wednesday’s decision. The Fed is nearing the end of its rate hike cycle, which we forecast will conclude with a final quarter percentage point increase at the March decision.”
A team led by Deutsche Bank AG’s Binky Chadha is maintaining its view that the S&P 500 can rise to 4,500 by the end of the first quarter, 12 per cent above Wednesday’s close, before slumping amid an economic contraction. That’s even as the benchmark is headed for its best January since 2019.
“We view the rally as having further to go,” the strategists wrote. “While a number of leading indicators have fallen steeply, raising the alarm, there are several reasons for a continued pushing out of the timing of a potential recession.”
However, it appears many investors don’t have the appetite to chase the rally. Some 35 per cent of clients in a recent JPMorgan Chase & Co. survey said they plan to add to stock holdings in the coming weeks. That’s a hair away from a 33 per cent reading in late November that marked an all-time low.
Corporate Highlights:
American Airlines Group Inc. expects profit this year to exceed estimates following a slow start, as steady demand for air travel keeps an industry recovery going into 2023.
Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss as the fallout extends into 2023 from a fiasco that led to thousands of canceled flights and prompted a federal probe into its operations.
Lam Research Corp., one of the three biggest providers of chip-manufacturing equipment in the U.S., is cutting about 7 per cent of its workforce to reduce expenses in a declining market.
Dow Inc. plans to cut about 2,000 jobs as the chemical maker seeks US$1 billion in savings and confronts a flareup in energy costs that followed Russia’s invasion of Ukraine.
Mastercard Inc. warned revenue growth would slow even faster than expected this quarter, stoking fears that inflation has put a damper on consumer spending.
Comcast Corp. topped Wall Street profit estimates in the fourth quarter despite continuing to lose customers in its cable and broadband businesses.
Key events:
Earnings for the week include: American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
U.S. personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the main moves in markets:
Stocks
The S&P 500 rose 0.6 per cent as of 10:26 a.m. New York time
The Nasdaq 100 rose 1.4 per cent
The Dow Jones Industrial Average rose 0.2 per cent
The Stoxx Europe 600 rose 0.5 per cent
The MSCI World index rose 0.6 per cent
Currencies
The Bloomberg Dollar Spot Index rose 0.1 per cent
The euro fell 0.3 per cent to US$1.0888
The British pound fell 0.2 per cent to US$1.2372
The Japanese yen fell 0.5 per cent to 130.29 per dollar
Cryptocurrencies
Bitcoin fell 2 per cent to US$23,127.32
Ether fell 0.4 per cent to US$1,612.75
Bonds
The yield on 10-year Treasuries advanced five basis points to 3.49 per cent
Germany’s 10-year yield advanced four basis points to 2.19 per cent
Britain’s 10-year yield advanced five basis points to 3.29 per cent
Commodities
West Texas Intermediate crude rose 1.3 per cent to US$81.19 a barrel
Gold futures fell 0.5 per cent to US$1,950.10 an ounce
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
