North American markets climb on gold, energy gains and positive Fed speeches

TORONTO – Signs that the U.S. Federal Reserve may not put the brakes on its aggressive monetary stimulus program any time soon sent North American markets higher Tuesday.

The S&P/TSX composite index climbed 129.38 points to 12,742.43, also boosted by strong gains in the energy and gold sectors. The Canadian dollar was up 0.22 of a cent at 97.39 cents US.

On Wall Street, both the Dow Jones industrials index and the S&P 500 again surged to record highs. The Dow closed ahead 52.30 points at 15,387.58, while the S&P was up 2.87 points at 1,669.16. The Nasdaq gained 5.69 points to 3,502.12.

The increases came after St. Louis Fed president James Bullard said in a speech in Frankfurt, Germany, that the best course of action 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.

New York Fed president William Dudley reiterated those worries Tuesday in a speech saying any decision by the central bank may cause the markets to “overreact.”

“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, according to notes of the speech 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 committee that sets interest rates and their comments come ahead of a much-anticipated statement by Fed chairman Ben Bernanke on Wednesday before the U.S. Congress.

Investors will also be watching for the release Wednesday of minutes from the Fed’s most recent policy meeting.

Meanwhile, the Toronto stock market surged ahead following a long holiday weekend, boosted by strong gains in the gold and energy sectors.

Gold stocks were the leading advancer on the resource-heavy TSX with a 3.16 per cent increase. Goldcorp Inc. (TSX:G) shares jumped nearly three per cent, or 77 cents, to $27.35 while Barrick Gold Corp. (TSX:ABX) rose more than four per cent, or 81 cents, to $19.88.

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.”

The energy sector also provided a life to the TSX, with a 1.34 per cent gain, as the July crude contract dipped 75 cents to US$96.18 a barrel. The June crude finished by dropping 55 cents to US$96.16 a barrel. EnCana Corp. (TSX:ECA) rose 3.7 per cent, or 72 cents, to C$20.16 and shares in Canadian Natural Resources (TSX:CNQ) were up $1.27 at $31.66.

Meanwhile, metal and mining stocks also climbed, up 1.25 per cent, as the price of copper dropped two cents to US$3.34 a pound. Teck Resources (TSX:TCK.B) was ahead 1.82 per cent, or 51 cents, at C$28.49 while shares in Thompson Creek Metals (TSX:TCM) were up nearly four per cent, or 12 cents, at $3.64.

Outgoing Bank of Canada governor Mark Carney delivered his last scheduled public speech Tuesday in Montreal, where he urged the country to seize its natural advantages.

Carney told a crowd at the board of trade 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 more interested now in what incoming governor Stephen Poloz will say when he assumes the role at 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 closed ahead 2.54 per cent, or $1.95, to US$78.71.

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 had predicted earnings of 76 cents per share.

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 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 was less than the 40 per cent vote that a similar proposal received last year.

Note to readers: This is a corrected story: A previous version said the dollar closed down