North American markets climb on gold, energy gains and positive Fed speech
Linda Nguyen, The Canadian Press
 A taxi across Bay Street in Toronto's financial district in Toronto on June 14, 2012. THE CANADIAN PRESS/Nathan Denette
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TORONTO - A sign that the U.S. Federal Reserve may not be putting the brakes on its aggressive monetary stimulus program any time soon sent U.S. markets higher Tuesday.
The Dow Jones industrials index shot ahead 86.36 points to 15,421.64, the Nasdaq gained 13.49 points to 3,509.92, while the S&P 500 was up 7.48 points at 1,673.77 after being mixed throughout the morning.
In a speech in Frankfurt, Germany, St. Louis Fed president James Bullard said the best course for the U.S. central bank is to continue with its $85-billion-a-month bond buying program, also known as quantitative easing.
Investors had been worried that the Fed would begin pulling back its monetary stimulus since recent data has showed outlooks for housing and jobs in the U.S. were rosier than expected.
Critics have questioned whether the recent record high closes for the Dow and S&P have been due to the relatively easy money coming from the Fed and how much the markets may suffer once the central bank turns off the tap.
Meanwhile, New York Fed president William Dudley said Tuesday that he worried that the markets would "overreact" to any decision by the central bank.
"Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation," he said in notes of a speech being delivered in New York.
"We will need to think long and hard about how best to develop policy in a way that enables us to respond flexibly to a changing economic outlook, but in a way that is not disruptive to the economy."
Both Dudley and Bullard are voting members on the Fed's interest-rate setting committee, and come ahead of a much-anticipated statement by Fed chairman Ben Bernanke on Wednesday before the U.S. Congress.
The Fed was also expected to release minutes from its most recent policy meeting on Wednesday. Both events have the potential to alter the prevailing backdrop in financial markets
Meanwhile, the Toronto stock market surged ahead following a long holiday weekend, boosted by strong gains in the gold and energy sectors.
The S&P/TSX composite index climbed 185.33 points to 12,798.38. The Canadian dollar was up 0.08 of a cent to 97.09 cents US.
Gold stocks were the leading advancer on the resource-heavy TSX with a 3.77 per cent increase. Goldcorp Inc. (TSX:G) shares jumped more than four per cent, or $1.11 to $27.69 while Barrick Gold Corp. (TSX:ABX) rose nearly five per cent, or 88 cents to $19.95.
The stocks advanced despite a decline in gold prices, with June bullion falling $6.50 to US$1,377.60 an ounce.
The discrepancy between gold stocks and bullion prices signal a possible correction, said Norman Raschkowan, Mackenzie Financial's chief North American strategist.
"In some respects, we had this disconnect before — where bullion was doing okay and stocks were doing poorly," he said.
"Now this is just probably a sense that the stocks got a little overdone on the downside and it's just a bit of a rebound to a more normal relationship with bullion."
Meanwhile, the energy sector also lifted the TSX, with a 1.69 per cent gain, as the June crude contract dipped 75 cents to US$96.18 a barrel. EnCana Corp. (TSX:ECA) stocks jumped almost five per cent, or 96 cents to C$20.40 and shares in Canadian Natural Resources (TSX:CNQ) were up $1.44 at C$31.83.
Metal and mining stocks also climbed, up 1.85 per cent, as the price of copper dropped two cents to US$3.34 a pound. Teck Resources (TSX:TCK.B) was ahead 2.18 per cent, or 61 cents, to C$28.59 while shares in Thompson Creek Metals (TSX:TCM) were up nearly five per cent, or 16 cents, at C$3.68.
Outgoing Bank of Canada governor Mark Carney delivered his last scheduled public speech in Montreal, where he urged the country to seize its natural advantages.
Carney told a crowd at the board of trade in Montreal that the Canadian financial and economic system has served it well during the recent recession and in the current recovery, but the country shouldn't rest on its laurels and just wait until the rest of the G7 countries repair their economies.
His speech had little impact on the markets, as investors are now more interested in what incoming governor Stephen Poloz will say when he assumes the role in the beginning of June.
Carney is leaving Canada to head the Bank of England.
"He's focused on his new challenge in the U.K.," said Raschkowan. "There, you got an economy that's struggling as many of the economies in Europe are, so he's got quite a task ahead of him."
Meanwhile, it was pretty quiet on the corporate front, as Home Depot (NYSE:HD) reported an 18 per cent increase in its net income for the first quarter thanks to the ongoing housing recovery.
The world's biggest home improvement chain also boosted its full-year earnings and revenue forecasts. Its shares climbed more than three per cent, or $2.42, to US$79.18.
For the three months that ended May 5, Home Depot Inc. earned US$1.23 billion, or 83 cents per share, up from US$1.04 billion, or 68 cents per share, a year earlier. Analysts predicted earnings of 76 cents per share.
Meanwhile, shares in Best Buy Co. (NYSE:BBY) were down more than five per cent, or $1.39, to US$25.42 as the electronics retailer reported a loss in its first quarter from selling its stake in Best Buy Europe.
Best Buy said its net loss for the three months ended May 4 after paying preferred dividends totalled US$81 million, or 24 cents per share, compared with a profit of $158 million, or 46 cents per share, last year. Its shares dropped three per cent, or 81 cents to $26 in mid-afternoon trading.
At a special hearing, executives at Apple Inc. (TSX:AAPL) disputed assertions by the U.S. Senate that the company avoided paying billions of dollars in taxes by shifting its profits to foreign affiliates. Tim Cook told the Senate permanent subcommittee on investigations that "we pay all the taxes we owe — every single dollar."
The subcommittee released a report yesterday detailing Apple's practices and accusing it of exploiting tax loopholes.
Shareholders at JPMorgan Chase, one of the world's largest financial banking and financial services company, voted to let chairman and CEO Jamie Dimon keep both his jobs.
At the bank's annual meeting, just 32 per cent of shareholders voted for a non-binding measure that would have advised the bank to split the roles. That's less than the 40 per cent vote that a similar proposal received last year.
