North American stock markets continued their winning streak Monday, as investors' growing confidence that former U.S. President Donald Trump may be heading back to the White House translated to fresh gains.
The S&P/TSX composite index was up 78.16 points to a new closing record of 22,751.68.
In New York, the Dow Jones industrial average was up 210.82 points to close at a record-setting 40,211.72. The S&P 500 index rose 15.87 points at 5,631.22 to close just shy of last week's all-time high, while the Nasdaq composite was up 74.12 points at 18,472.57, just short of its own high.
Monday's strong performance extended recent momentum driven by indications that U.S. inflation may be finally slowing enough to convince the Federal Reserve to reduce interest rates.
But stocks got an added boost from investors who feel Trump's chances of re-election are looking increasingly likely. Some pollsters have said Trump, who survived an assassination attempt over the weekend, could get an immediate bump in voter support in the aftermath of that event.
"People are calling it the 'Trump trades,' " said Stephen Duench, vice-president and portfolio manager of AGF Investments Inc.
"A lot of the things that we saw last week (in the markets) just got supercharged on President Trump's election odds going higher."
The stock market likes the idea of a Trump 2.0 presidency, Duench said, in large part because a Republican administration is seen as potentially having a lighter regulatory touch than a Democratic one.
The sectors most poised to benefit from less regulation, such as financial companies and the energy industry, led the market Monday.
In Canada, energy stocks were the TSX's best performers, with the S&P/TSX capped energy index up 1.79 per cent by day's end.
"We're over-concentrated in financials and energy in Canada," Duench said.
"So by default, we benefit. Like it or not, the Trump trade plays well for Canada as well."
The other factor helping to lift markets Monday was fresh comments from U.S. Federal Reserve chair Jerome Powell, who said in a question-and-answer session in Washington that the central bank is becoming more convinced that U.S. inflation is headed back to its two per cent target.
While Powell did not provide any hints of when the first rate cut would occur, he said the Fed will cut rates before the pace of price increases actually reaches the two per cent target.
Investors are keen to see the U.S. Federal Reserve begin cutting interest rates, a move that would help companies of all sizes that have been under pressure from the increased cost of borrowing.
But while the Bank of Canada has already started to cut rates, Fed officials have been saying they want to see “more good data” on inflation before making a move.
Much of Wall Street is now banking on the Federal Reserve to begin cutting its main interest rate in September, Duench said.
He said all eyes will be on the central bank's annual summer conference in Jackson Hole, Wyo. in August.
"Generally, Jackson Hole is where they (the Fed) kind of give us the market colour in terms of Federal Reserve interest rate policy for the next 12 months," Duench said.
Until then, investors will be watching for any economic data that might derail the growing consensus that inflation has eased enough to warrant a rate hike.
The latest round of North American corporate earnings, which is just beginning, will also be important, Duench added.
While markets have been on a tear and there is still plenty of opportunity to go higher, nothing is set in stone yet, he said. Even the "Trump trades" aren't guaranteed to continue.
"We're so early in the game. It's still mid-July and the election isn't for many months," Duench said.
"So again, that could add a little bit of risk, or at least volatility to the market."
The Canadian dollar traded for 73.19 cents US compared with 73.38 cents US on Friday.
The August crude oil contract was down 30 cents at US$81.91 per barrel and the August natural gas contract was down 17 cents at US$2.16 per mmBTU.
The August gold contract was up US$8.20 at US$2,428.90 an ounce and the September copper contract was down seven cents at US$4.53 a pound.
This report by The Canadian Press was first published July 15, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
-- With files from The Associated Press
Amanda Stephenson, The Canadian Press
