Market week: Stocks rally as Fed cuts rates

11-01-2019
Market week: Stocks rally as Fed cuts rates

U.S. indices gain in October, S&P/TSX slides

Stock market indices rallied on Friday to close with solid weekly gains following an interest rate cut by the U.S. Federal Reserve Board on Thursday and strong monthly U.S. job creation data for October. The S&P 500 Composite Index advanced 1.5% on the week and posted a 2.0% gain in October, while the Nasdaq Composite Index posted a 1.7% weekly gain, and advanced 3.7% in October. Toronto’s S&P/TSX Composite Index also rallied on the week, climbing 1.2%, as the Bank of Canada held its benchmark interest rate steady, while GDP grew marginally in August, following a no-growth July. However, the S&P/TSX Composite slipped 1.1% in October, as energy stocks declined with the S&P/TSX Capped Energy Index falling 10% in the month.

The U.S. Dept. of Labor reported that 128,000 new jobs were created in October, considerably more than street expectations of a gain of 75,000 jobs. The unemployment rate ticked up to 3.6% from 3.5% in September, as weakness in the manufacturing sector (e.g., the GM strike) fed through to the monthly unemployment data. The Institute for Supply Management reported that its October manufacturing activity index edged up to 48.3% in October, an increase from September’s 47.8%, but still below the 50% level that indicates growth in the sector. Third-quarter U.S. gross domestic product grew at an annual 1.9% rate, about the same as the 2.0% growth posted in the second quarter.

The U.S. Federal Reserve Board cut its federal funds rate by 25 basis points, to between 1.5% and 1.75%, as Fed Chairman Jerome Powell signalled a pause in rate cuts while the Fed monitors the effects of its policy actions.

In Canada, GDP grew at a modest 0.4% month over month rate in August, showing at least some growth following no growth in July. A stronger housing market and growth in the goods-producing sectors helped lift growth for the month.

The Bank of Canada, meanwhile, held its key overnight target rate steady at 1.75%, saying “Growth in Canada is expected to slow in the second half of this year to a rate below its potential.” The BoC is carefully watch global economic conditions, adding, “the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist.” Having held rates steady for a year, the BoC has kept its powder dry in the event of deteriorating economic conditions, and “will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

Index

Nov. 1, 2019, close

Day

Week

Year to Date

Oct. 31, 2019, close

October 2019

S&P/TSX Composite

16,594.07

0.7%

1.16%

15.86%

16,483.16

-1.05%

S&P 500 Composite

3,066.91

1.0%

1.47%

22.34%

3,037.56

2.04%

Nasdaq Composite

8,386.40

1.1%

1.74%

26.39%

8,292.36

3.66%

Gold (US$)

$1,511.60

0.0%

0.53%

18.12%

1,487.40

0.58%

Oil (WTI) (US$)

$56.23

3.8%

-0.71%

23.83%

55.06

1.47%

 

FUND NEWS

* CIBC debuts fixed-income pools. CIBC on Oct. 28 debuted three fixed-income pools consisting of a mix of mutual funds and exchange-traded funds (ETFs), CIBC says in a release that the pools are designed as long-term core bond holdings that feature built-in rebalancing and tactical asset allocation. The pools provide exposure to actively-managed investments in government and corporate bonds across the spectrum of investment grade and high yield, geography, and currency.

CIBC Conservative Fixed Income Pool focuses on shorter-term, investment-grade Canadian bonds with some exposure to global investment-grade, high-yield, emerging market debt, and currencies.

CIBC Core Fixed Income Pool adds more exposure to high-yield, emerging market debt, and currency with the aim of generating higher yields with moderate interest-rate and credit-risk exposure.

CIBC Core Plus Fixed Income Pool is designed for the highest yield and total return potential and has the highest exposure to high-yield, emerging market debt, and currencies.

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