Markets in Canada and the U.S. climbed steadily Thursday in yet another reversal during a volatile week, with tech helping drive strength as well as some signs of recovery in embattled financial stocks.
Investors have been grappling all week with the fallout of two bank closures over the weekend that sparked wider concerns about the financial system.
“The banking sector globally has really been the key reason we’ve seen so much volatility in all kinds of markets, not just equity markets,” said Steve Locke, chief investment officer for fixed income and multi-asset strategies at Mackenzie Investments.
The S&P/TSX composite index was up 160.17 points to 19,539.01.
In New York, the Dow Jones industrial average was up 371.98 points, or 1.2 per cent, to 32,246.55. The S&P 500 index was up 68.35 points, or 1.8 per cent, to 3,960.28, while the Nasdaq composite was up 283.33 points, or 2.5 per cent, to 11,717.28.
With the next U.S. Federal Reserve interest rate decision looming, markets can’t seem to decide what to expect anymore, Locke said.
Just last week the Fed was hawkish in its comments about its plans for interest rates, and a hike of half a percentage point at the central bank’s meeting next week seemed like a real possibility to many investors, said Locke. But this week, market expectations have swung to the extent that they’re not even sure there will be a quarter-point hike next week, he said — and they’re also pricing in cuts in the near future.
“I think the market is trying to grapple with this in real time,” said Locke, but “the fact of the matter is that inflation in both Canada and the U.S. is still too high.”
“I think that what the curve is pricing in here in Canada and the U.S. is a little bit too aggressive on rate cuts,” he said.
Locke said a quarter-point hike seems the likely scenario for next week, followed by a levelling-off by the central bank, noting his firm has had to soften its outlook on rates ever so slightly given the events of this week.
That’s because one potential silver lining to the banking sector’s woes is that banking system concerns can pose very large risks to economic growth and can therefore be disinflationary, he said.
Meanwhile, U.S. jobless claims released Thursday were lower than expected, displaying continued strength in the labour market, Locke said.
Locke said a mild recession or soft landing are the two most likely scenarios, and he believes that’s been the case for a while now despite recent pockets of investor optimism that a “no landing scenario” was possible.
The Canadian dollar traded for 72.76 cents US compared with 72.58 cents US on Wednesday.
Oil prices ticked upward Thursday after three straight days of tanking crude prices, though it remained below US$70 a barrel.
The April crude contract was up 74 cents at US$68.35 per barreland the April natural gas contract was up eight cents to US$2.51 per mmBTU.
The April gold contract was down US$8.30 at US$1923.0 an ounce and the May copper contract was up two cents to US$3.86 a pound.