US and Canadian stocks added to their recent recovery on Friday after upbeat forecasts from Apple and Amazon.com and as investors continued to bet that the US Federal Reserve will soon slow the pace of rate hikes interest rate given the softening of the economy.
Wall Street closed with its best month since November 2020, a welcome respite for investors after a punishing year for the market. For the TSX, the index rose 4.4% in July, its first monthly advance since March.
The S&P 500 rose 1.4% and ended July up 9.1%. A rally in tech stocks, big retailers and other companies that rely on direct consumer spending helped fuel the index’s broad gains this month. The index continues to fall by 13.3% during the year.
The tech-heavy Nasdaq rose 1.9% to end the month up 12.4%, while the Dow Jones Industrial Average rose 1% to post a 6.7% gain for the month.
The latest rally came as investors weighed a combination of corporate earnings reports and new data showing inflation rose the most in four decades last month.
Stock gains in recent weeks have been driven by better-than-expected corporate earnings reports and falling bond yields, which have retreated after soaring much of this year with higher interest rate expectations.
“You’ve had a precipitous drop in 10-year Treasury yields,” said Rob Haworth, senior investment strategist at US Bank Wealth Management. “With inflation so hot, I think the expectation is that the Fed will stay on track, but it’s damaging enough to the economy that they’re going to have to pivot in 2023.”
The S&P 500 rose 57.86 points to 4,130.29. The Dow gained 315.50 points to close at 32,845.13. The Nasdaq rose 228.09 points to 12,390.69.
Shares of smaller companies also gained ground. The Russell 2000 rose 12.20 points, or 0.7%, to 1,885.23. It ended July with a 10.4% increase.
Weak economic data, including a report on Thursday showing the U.S. economy contracted last quarter and may be in recession, have also spurred stocks higher, giving some investors confidence that the Federal Reserve it will be able to slow down its aggressive pace of rate hikes sooner. than expected
The central bank raised its key short-term interest rate by 0.75 percentage points on Wednesday, lifting it to the highest level since 2018. The Fed raises rates to try to slow the US economy and slow the inflation
A gauge of inflation closely followed by the Federal Reserve rose 6.8% in June from a year ago, the biggest increase in four decades, leaving Americans with no relief from rising prices. Month-on-month inflation accelerated to 1% in June from May’s 0.6% monthly increase, the Commerce Department said on Friday.
The numbers underscored the persistence of inflation that is eroding Americans’ purchasing power, eroding their confidence in the economy and threatening Democrats in Congress heading into November’s midterm elections.
However, some market watchers advised against putting too much emphasis on the June data.
“This inflation metric is for June and we know a lot has changed since then, especially gas prices, so investors should put this inflation report in historical context,” said Jeffrey Roach , chief economist at LPL Financial. “Looking ahead, July inflation rates will ease slightly from the previous month, as food and energy costs should ease in July.”
Still, inflation weighed on one company’s earnings Friday: consumer staples giant Proctor & Gamble. Shares of laundry detergent maker Tide fell 5.3% after the company said consumers were cutting back, but the company’s recent price hikes kept profits under wraps.
Other earnings reports from the company were more encouraging.
Exxon and Chevron posted record quarterly profits last quarter amid high oil and gas prices. The two companies made $46 billion last quarter and roughly four times the amount of money they made in the same period a year earlier. Chevron shares rose 8.9% to a six-week high, while Exxon rose 4.6%.
Amazon surged 10.4% to be the biggest gainer in the S&P 500 after the company posted a quarterly loss, but its revenue rose sharply in the quarter.
Apple rose 3.3% after its quarterly earnings were better than Wall Street expected. The iPhone maker saw its April-June profit fall 10% while revenue rose 2% as it struggled with manufacturing headaches and inflationary pressures.
It was a mixed day in the bond market. The yield on the two-year US Treasury, which tends to move in line with Fed expectations, rose to 2.89% from 2.87% late Thursday. The 10-year yield fell from 2.67% to 2.65%. Canada’s five-year bond, which influences mortgage rates, was almost unchanged.
The Toronto Stock Exchange’s S&P/TSX composite ended up 236.21 points, or 1.2%, at 19,692.92, its highest close since June 13.
Boosting the index, oil major Imperial Oil Ltd gained 3.9% after reporting a more than six-fold jump in second-quarter profit as the energy company benefited from rising energy prices after the Russian invasion of Ukraine.
“It’s really encouraging to see the special dividends and buybacks being announced by these companies,” said Greg Taylor, portfolio manager at Purpose Investments. “It’s a good reminder for investors about how much cash flow the big energy companies generate.”
Energy stocks advanced 2.9% as oil prices rose ahead of next week’s OPEC+ meeting, with dampened expectations that the producer group will imminently raise output offer US crude futures rose 2.3% to $98.62 a barrel.
Energy has been the best performing sector in the Toronto market so far this year, up 45%. Its heavy weighting has helped the TSX outperform some of its major US and European peers.
The materials group, which includes precious and base metals miners and fertilizer companies, added 2.4% as gold and copper prices rose.
Other cyclical sectors such as industrials and financials also gained ground as data showed the Canadian economy likely grew at an annualized rate of 4.6% in the second quarter, above the Bank’s projection from Canada
The Associated Press, Reuters, Globe staff
Be smart with your money. Get the latest investment insights straight to your inbox three times a week with the Globe Investor newsletter. Sign up today.