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After the steepest selloff in two years began its reversal last Friday afternoon, most global stock markets followed through with gains every day this week. Although a faster-than-expected U.S. inflation reading threatened to derail the advance early Wednesday and lifted 10-year Treasury yields to a four-year high, investors’ fears were quickly pushed aside by reports of weaker U.S. retail sales and slower industrial production. As the economic data reinforced views that the Federal Reserve would maintain a gradual approach to raising interest rates, the U.S. dollar resumed its year-long decline, helping to support metals and other commodity prices.
With the gold, base metals, and materials stocks leading the way among major sectors, Canada’s S&P/TSX Composite Index made solid gains, but returning to recent form, lagged the strength of its southern neighbour. The industrials sector was also among the leaders, as Bombardier Inc. surged after reporting earnings and an impressive improvement in cash flow. The lesser-weighted technology sector saw the biggest absolute gain, driven by a jump in the shares of Shopify Inc. The e-commerce company announced its platform had been chosen by the Ontario government to power online cannabis sales in the province when recreational marijuana use becomes legal later this year. The heath care group was the only sector in the red this week.
The S&P 500 index saw gains in all major sectors. As investors shrugged off fears of the Federal Reserve raising rates too fast, the reporting season for fourth quarter 2017 earnings wound down with both sales and earnings growth at their highest in over six years, and significantly above the expectations analysts had going into the quarter. As in Canada, the technology sector topped the leaderboard with big moves from Cisco Systems Inc. and Advanced Micro Devices. Information technology services companies all got a lift when General Dynamics announced it was acquiring CSRA Inc., causing its shares to surge. The financial sector was also especially strong, benefiting from both improving earnings and the continued upward drift of interest rates. Those sectors that have tended to underperform as interest rates have climbed (the so-called bond proxies: staples, utilities, real estate, telecom) all lagged the broader index, as did energy stocks.
Major markets in Europe took their cue from those in North America and picked up steam this week as data showed Eurozone GDP growth maintaining its healthy pace. Asian markets were mostly up also, with Japan a notable laggard. The country’s GDP growth for 2017 was reported at nearly double the prior year’s pace and the fastest growth rate in four years. But in a holiday-shortened trading week, Japanese stocks were pressured by a stronger yen, which climbed to a 15-month high after the finance minister indicated he was not concerned by the rising currency. Many other Asian markets closed early this week for Chinese Lunar New Year celebrations. Chinese mainland markets will remain closed through the middle of next week.
What’s ahead next week:
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