Shopify leads TSX rally; U.S. stocks rise as rate-hike bets ease
North American markets accelerated to the upside Wednesday as investors dialled back expectations for future U.S. Federal Reserve interest rate hikes and continued to digest a barrage of corporate earnings.
The S&P/TSX Composite Index closed 281.88 points higher, or 1.49 per cent, at 19,254.56 amid a broad-based rally led by Shopify Inc.
Shares of Shopify gained 11.01 per cent to end at $45.17 Wednesday as Chief Executive Officer Tobi Lütke laid out his long-term plan to reduce costs and improve services for small business customers, one day after the company laid off 10 per cent of its workforce.
The e-commerce giant also reported a net loss of US$1.2 billion in its second quarter as revenue rose 16 per cent US$1.3 billion compared to a year earlier.
Canadian National Railway Co. was the second-most influential stock on the TSX Wednesday. Shares closed 4.18 per cent higher at $156.91 following the company’s second-quarter results Tuesday that beat revenue and profit expectations. CN Rail’s second-quarter revenue benefitted from higher fuel surcharge rates, freight rate increases, and a surge in coal and automotive shipments.
“You look at CN Rail doing something that many companies are not able to do [and] that’s really passing on the fuel costs and the higher costs [to customers],” Stan Wong, a portfolio manager at Scotia Wealth Management, said in an interview.
Despite CN Rail’s rally on the markets Wednesday, Wong noted that the company’s future earnings remain uncertain.
“We need to be careful in terms of where the economy is going, in terms of the possibility for deceleration and how much we want to have in this transport industrial type of space,” he said.
U.S. markets gained steam in the latter half of the trading day. The S&P 500 jumped 2.62 per cent, the Dow rose 1.37 per cent and the Nasdaq soared 4.06 per cent.
The U.S. Federal Reserve hiked its benchmark rate three-quarters of a percentage point to a range of 2.25 per cent to 2.5 per cent to tamp down inflation and said it could hike by a similar amount at its next meeting.
However, U.S. Federal Reserve Chairman Jerome Powell said in a news conference that the central bank would slow the pace of increases at some point. Powell also said the Fed will set monetary policy on a meeting-by-meeting basis instead of providing guidance.
Danielle DiMartino Booth, chief executive officer and chief strategist of Quill Intelligence and a former advisor to the Federal Reserve Bank of Dallas, said there were two key takeaways from Powell’s comments.
“One is that they're recognizing that the tightening of monetary policy — raising interest rates — that it's begun to impact consumption. And they’ve begun to see some softening in spending,” she said in an interview.
“The second thing was, the Fed effectively followed the European Central Bank in getting rid of forward guidance. Jay Powell said that they're now going to be on a meeting-by-meeting basis, and he can't really tell what the economy is going to be doing in six to nine months, which really was reminiscent of the Jay Powell who started his first term because that was what he said back then.”
Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence and a former advisor at the Dallas Fed, joins BNN Bloomberg and asks why Fed Chair Jerome Powell is looking at a lagging indicator like the labour market in stating the U.S. is not in a recession now. She says this Fed does not want to shock the financial markets with large rate hikes, but that approach may require larger hikes later.
After regular trading hours, Facebook parent company Meta Platforms Inc. reported its first ever quarterly sales decline amid weakness in advertising. Meta shares dropped immediately following the results in extended trading.
The slowdown in advertising echoed similar trends seen in Twitter Inc. and Snap Inc. results.
Benchmark West Texas Intermediate rose US$2.28 to settle at US$97.26 per barrel.
The Canadian dollar rose 0.45 per cent to 77.95 cents U.S.
Here’s a roundup of some other earnings-related stories:
- Rogers Communications Inc. reported adjusted profit and revenue for the second quarter that were in line with analysts estimates. The company also extended its timeline to close its proposed takeover of Shaw Communications Inc.
- Loblaw Companies Ltd. posted an increase in second-quarter profit and revenue, driven by higher sales at Shoppers Drug Mart and its discount grocery chains.
- Crescent Point Energy Corp. saw its adjusted earnings per share jump in the second quarter compared to last year amid higher oil prices.
- The boom in commodity prices helped power Teck Resources Ltd. to its fourth-straight quarter of record profits.
- Air freighter Cargojet Inc. saw revenue surge 43 per cent year-over-year in its latest quarter as it was able to capitalize on the chaos plaguing airports.
-- With files from Iva Poshnjari and Daniel Johnson
