North American stock markets hit record highs again Friday as strong earnings from some of the big U.S. banks painted a picture of an economy that is still humming.
The S&P/TSX composite index was up 168.91 points at 24,471.17, topping its previous all-time high.
In New York, the Dow Jones industrial average was up 409.74 points to set a new record at 42,863.86. The S&P 500 index was up 34.98 points to hit a new all-time high at 5,815.03, while the Nasdaq composite was up 60.89 points at 18.342.94.
Here in Canada, fresh jobs data and a new report on consumer sentiment gave analysts food for thought. But the biggest factor influencing markets on both sides of the border was U.S. bank earnings, said Philip Petursson, chief investment strategist at IG Wealth Management.
A number of that country’s biggest banks released better-than-expected third-quarter earnings on Friday, in particular JP Morgan Chase, which climbed 4.4 per cent after reporting a milder drop in profit than analysts feared.
Banks traditionally kick off the earnings reporting season in the U.S., so the encouraging numbers that came out Friday suggested that results from other companies and sectors may also be positive, Petursson said.
"Right now it's all about earnings and guidance going into 2025 for the U.S., and I think that will also roll into Canada," he said.
"Listening to the guidance of what the companies are saying themselves in terms of expectations as we go into 2025 will set the tone for the market right now."
Traders are watching corporate earnings closely because they want to see signs that the U.S. Federal Reserve is on track to achieve a "soft landing," the term for the sweet spot achieved by central banks when they seek to raise interest rates enough to gain control of inflation but without tipping the economy into recession.
Last month, the U.S. Federal Reserve cut its main interest rate from a two-decade high, an indication that it is now widening its focus to keeping the economy healthy instead of just fighting inflation.
Many traders have been expecting the Fed to cut rates again by 25 basis points at its next meeting in November, something that would provide a boost to stocks by relieving the pressure high interest rates have been putting on businesses and corporations.
But Petursson said the Fed could choose to not cut at all, given a report earlier this week that showed U.S. inflation at the consumer level isn't cooling as quickly as economists expected.
"To me, the data is suggesting that the Fed could take their time with this," he said. "I think it's 25 (basis points) or nothing in November, and I think it's too close to call either way."
The Bank of Canada is set to make its next rate decision Oct. 23. Petursson said a cut is more likely here because the Canadian economy is not humming along at the same pace the U.S. is.
On Friday, fresh monthly jobs data from Statistics Canada came in stronger than many economists expected, but the longer-term trend in Canada's labour market has still been downward.
In addition, the central bank's own survey of consumer sentiment released Friday found Canadians were less pessimistic about their finances as summer wound down but are still not upbeat about the situation.
"So I do think that the Bank of Canada has a good reason to cut by 50 (basis points)," Petursson said. "This is the difference between the Bank of Canada's potential policy and the Fed."
The Canadian dollar traded for 72.67 cents US compared with 72.71 cents US on Thursday, and Petursson said there will continue to be downward pressure on the loonie if the Bank of Canada's monetary policy continues to appear to be headed for a different trajectory than the U.S. Fed.
Petursson said he is also keeping his eye on the price of oil. Higher commodity prices have helped lift the TSX in recent weeks, thanks to gains in both energy and mining stocks. While oil eased off slightly Friday, Petursson said the ongoing tensions in the Middle East still have the potential to push oil higher in the weeks to come.
"There's very little of a risk premium priced into oil currently. And so I do think that oil can continue to grind higher, and it wouldn't surprise me," he said.
The November crude oil contract was down 29 cents at US$75.56 per barrel and the November natural gas contract was down five cents at US$2.63 per mmBTU.
The December gold contract was down US$37 at US$2,676.30 an ounce and the December copper contract was up six cents at US$4.49 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
- With files from The Associated Press
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Amanda Stephenson, The Canadian Press