Global equity market rose on Friday after Federal Reserve Chairman Jerome Powell expressed no surprises in a key speech outlining a steady course for monetary policy, while oil prices surged on signs Iran sanctions may constrain worldwide supply.
The benchmark S&P 500 and the Nasdaq hit all-time highs after Powell’s comments at an annual meeting of central bankers did little to change market expectations of an interest rate hike in September and perhaps again in December.
The TSX also rose, but was underperforming the major U.S. indexes, despite another surge in pot stocks and a rally in the energy sector.
The U.S. dollar weakened as Powell, speaking in Jackson Hole, Wyoming, said a gradual approach of raising rates remains appropriate to protect the U.S. economy and keep job growth as strong as possible with inflation under control.
The dollar index fell 0.58 percent, while the euro and Japanese yen rose against the greenback. MSCI’s gauge of stocks across the globe gained 0.55 percent while it’s emerging market index rose 0.33 percent.
The Fed is very confident in the U.S. economy and Powell indicated there is no intention of slowing down the Fed’s rate hikes, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
“We are seeing some of the more cyclical sectors like energy, materials, continuing to move higher on the expectation that the Fed is going to let the economy run a little hot,” Zaccarelli said.
The energy sector jumped 1.19 percent, the most among the 11 S&P sectors. The materials sector gained 1.41 percent.
In Europe, the pan-European FTSEurofirst 300 index of regional shares closed up a preliminary 0.12 percent.
On Wall Street, the Dow Jones Industrial Average rose 139.04 points, or 0.54 percent, to 25,796.02. The S&P 500 gained 16.57 points, or 0.58 percent, to 2,873.55 and the Nasdaq Composite added 66.29 points, or 0.84 percent, to 7,944.75.
Strong economic growth, strong earnings and low interest rates have combined to continue to move the U.S. equity market higher, said Leo Grohowski, chief investment officer for BNY Mellon Wealth Management.
“The market’s not cheap, but it’s not as demandingly valued as many think it should be given that we continue to reach new highs,” he said. “I’m very encouraged by the market’s ability to look through the disturbing political headlines of the week.”
U.S. Treasury prices gave back earlier losses after Powell made the case for further rate increases.
Benchmark 10-year U.S. Treasury notes fell 2/32 in price to yield 2.828 percent, after rising to 2.850 percent before Powell’s speech.
The yield curve between two-year and 10-year notes narrowed to 20 basis points, the flattest since 2007. An inverted yield curve in the past has pointed to a recession will occur within two years.
Oil prices surged, rising almost 2 percent, on signs that Iran sanctions may limit global supply and that a trade war may not curb China’s appetite for U.S. crude.
Benchmark Brent crude oil rose $1.45 a barrel to $76.18. U.S. crude gained $1.31 at $69.14.
The euro rose 0.72 percent to $1.162 while the Japanese yen strengthened 0.05 percent versus the greenback at 111.25 per dollar.
Canada’s main stock index also gained on Friday after a rise in gold prices lifted shares of precious metal miners and higher oil drove gains in energy shares.
The Toronto Stock Exchange’s S&P/TSX composite index was up 0.3 per cent.
Enbridge fell 1.8 percent, and was the biggest drag after the country’s largest pipeline operator said it would buy its U.S. master limited partnership Spectra Energy Partners for a sweetened $3.3 billion deal.
Marijuana stocks gained after a Bloomberg report that U.K. alcohol giant Diageo is holding serious discussions with at least three major cannabis producers as it seeks to add marijuana-infused beverages to its portfolio of global brands. Aphria rose 5.4 percent, the most on the main index, while Canopy Growth and Aurora Cannabis gained about 2 percent each.
The most heavily traded shares by volume were those of Aurora Cannabis, Red Eagle Mining and Aphria.