Canada’s primary stock index experienced a significant jump of nearly 150 points on Tuesday, thanks to widespread gains following a new report revealing a slowdown in inflation during the month of May. Meanwhile, economic optimism also boosted U.S. markets.
The S&P/TSX composite index soared by 145.77 points, reaching a level of 19,733.09. In New York, the Dow Jones industrial average rose by 212.03 points to 33,926.74, while the S&P 500 index climbed 49.59 points to 4,378.41. The Nasdaq composite also saw a substantial increase of 219.89 points, bringing it to 13,555.67.
Tech stocks, particularly those involved in artificial intelligence, continued to outpace the broader market, a trend that has persisted in recent weeks. Lesley Marks, the chief investment officer of equity at Mackenzie Investments, noted that although there has been some broadening out in the market, tech stocks remain in the lead.
Nvidia, a leading tech stock, experienced a 3.1% increase, while Tesla saw a gain of 3.8%. Marks also acknowledged the overall market growth driven by positive economic data, which has boosted consumer confidence, strengthened home sales, and reinforced the durable goods sector. She emphasized that despite higher interest rates, the economy remains resilient.
Airline stocks made significant contributions to the market surge in the U.S., with Delta rising by 6.8%, American Airlines by 5.5%, and United Airlines by 5.1%. Marks highlighted the alignment of this economic data with the views expressed by the U.S. central bank, which suggests the likelihood of further rate hikes.
In Canada, the inflation data released on Tuesday was consistent with expectations, as inflation in May decreased to 3.4% from April’s 4.4%. Marks suggested that this data may give the Bank of Canada some breathing room in its upcoming meeting in July. Previously, the central bank had paused rate hikes but decided to raise rates in the last meeting.
The Bank of Canada takes various factors into account when making its decisions, not solely relying on inflation data. Currently, the market is indicating nearly equal odds of a rate hike by the bank in July. Marks stated that significant deterioration in economic data would be required to deter the bank from proceeding with a rate hike, but there are no indications of such deterioration.
Marks observed that central banks in other countries, including Europe and England, are also grappling with similar issues faced by Canada and the U.S., resulting in recent rate hikes. She believes that monetary policy in the Western world has yet to reach its peak.
In terms of currency exchange, the Canadian dollar was trading at 75.90 cents US, slightly lower than the 76.04 cents US on Monday. Additionally, the August crude oil contract experienced a decline of US$1.67, settling at US$67.70 per barrel, while the August natural gas contract dropped by 10 cents to reach US$2.79 per mmBTU. The August gold contract also saw a decrease of US$10, reaching US$1,923.80 per ounce, and the September copper contract declined by two cents, settling at US$3.79 per pound.
In conclusion, the stock market showed strong growth on Tuesday, supported by favorable economic data and the performance of tech stocks. The Bank of Canada’s decision regarding rate hikes will be influenced by various factors, considering the overall economic situation. Central banks worldwide are grappling with similar challenges, indicating that monetary policy is still evolving.
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