The Toronto stock market posted a triple-digit gain and recovered some of its recent losses Tuesday as the price of oil surged, while New York markets were buoyed by expectations of the first interest-rate hike by the Fed since the Great Recession.
The S&P/TSX composite index closed up 224.08 points at 12,919.57 as the price of January benchmark crude oil rose for a second day, up $1.04 to end trading at US$37.35 a barrel.
The TSX had lost nearly 630 points since oil prices slid below US$40 a barrel on Dec. 3.
Gareth Watson, director of the Investment Management Group at Richardson GMP, said the recovery was due in part to the massive sell-off in commodities and equities over the past week and a half.
“There’s a bit of a knee-jerk reaction here where I think some of the buyers are stepping in,” he said.
“Nothing massively changed overnight, but people might be sniffing around for a bargain.”
In New York, the Dow Jones industrial average rose 156.41 points to close at 17,524.91, while the broader S&P 500 index advanced 21.47 points to end at 2,043.41 and the Nasdaq jumped 43.13 points to 4,995.36.
Watson said traders are focused on the outcome of the two-day policy rate meeting of the U.S. Federal Reserve, which winds up Wednesday.
The Fed is widely expected to raise interest rate for the first time since the 2008 financial crisis as America’s economy is finally showing signs of life.
Watson said the bigger questions now are how big the rate hike will be and how fast the central bank will raise rates in the future.
“We haven’t had a rate hike in the United States or Canada in a very long time, so that verdict is still out,” he said.
Every night, banks and financial institutions across the United States seek to balance their books by lending money to one another that is held by the Federal Reserve. The Fed sets the interest rate on this overnight lending, and that rate is used as a benchmark for the interest rates on everything from credits cards to mortgages.
Normally, higher interest rates would be negative for the stock market, in part because an increase in the Fed’s overnight rate makes it more expensive for many market participants who borrow money to invest.
Yet Watson said the market is expected to react positively to a rate “liftoff” by the Fed as it would send a signal that the U.S. central bank believes in the overall strength of the country’s continuing economic recovery.
Other commodities didn’t fare as well as oil in the day’s trading. January natural gas fell 7.2 cents to settle at US$1.822 per mmBtu, while February gold fell $1.80 to end trading at US$1,061.60 a troy ounce and March copper lost 5.5 cents to US$2.057 a pound.
The Canadian dollar was unchanged on the day at 72.79 cents US.