Stock markets continue hitting records
Canada’s largest stock market continued its record-breaking streak for a third straight day, as bank stocks rallied on both sides of the border amid signals from the U.S. Federal Reserve that it remains committed to hiking interest rates.
In Toronto, the S&P/TSX composite index advanced 29.45 points to 15,786.03, with financials and energy stocks chalking up large gains. The index has been on a tear recently, advancing for the sixth session in a row.
Wall Street indices also rose to record levels again, with the Dow Jones industrial average jumping 92.25 points to 20,504.41, the S&P 500 adding 9.33 points to 2,337.58 and the Nasdaq composite rising by 18.61 points to 5,782.57. It’s the fourth day of record closes for U.S. markets.
Much of the gains in Toronto and New York were attributed to the financials sector, as investors reacted positively to hawkish comments from Fed chair Janet Yellen.
Bank stocks do well in a higher interest rate environment because it increases the yields on their cash reserves and it earns more when lending money.
Earlier in the day, Yellen testified before a Senate committee that the U.S. central bank is ready to gradually raise rates if the job market continues to strengthen and inflation continues to rise.
She also cautioned that it “would be unwise’’ if the Fed waited too long to move on rates, because then it would be forced to raise them rapidly. She repeated the word “gradual’’ to describe expectations for future increases and gave no hints on whether investors can anticipate a hike at its next meetings in March or June.
The central bank raised rates in December for just the second time in a decade. Its key interest rate currently is between a 0.5 to 0.75 per cent range.
It was Yellen’s first testimony before Congress since U.S. President Donald Trump took office.
Stephen Carlin, head of equities and managing director at CIBC Asset Management, says Yellen’s comments were purposely vague because the central bank doesn’t want to be obligated to act according to a set timeline without knowing the effects that can result from policies enacted by the Trump administration.
Some economists forecast that Trump’s ambitious economic program will lead to higher inflation.