Dow at record above 27,000 as U.S. rate cuts look likely

The Dow Jones industrial stock index hit record territory above 27,000 points Thursday, as U.S. Federal Reserve chair Jerome Powell reiterated the central bank is prepared to cut interest rates to support the economy.

In testimony before the Senate banking committee on Thursday, Powell pointed to the U.S.-China trade war and signs of a global slowdown as reasons the Fed might have to cut rates at the end of July.

The Dow closed at 27,088, up 227 points, mainly on the strength of tech stocks.

The broader Standard & Poor also flirted with record territory above 3,000, before closing at 2,999, up from 2,993 at the end of Wednesday.

The tech-heavy Nasdaq closed down 6.48 points after sinking from near its technical high. Stock indexes around the world rose Wednesday on Powell's remarks to the House of Representatives, hinting at lower rates, and he repeated the message Thursday.

Stocks were briefly knocked lower by a tweet from U.S. President Donald Trump, accusing China of "letting us down" by not promptly buying more U.S. farm products.

"They have not been buying the agricultural products from our great Farmers that they said they would," Trump said on Twitter. "Hopefully, they will start soon."

The U.S. consumer price index, released by the Labour Department on Thursday, increased 1.6 per cent in June from a year earlier.

Cheaper gas prices were offset by higher rents and auto costs, but the key core inflation rate was an annualized 2.1 per cent, close to the Fed target.

Federal Reserve policymakers have cited low inflation readings as a justification for potentially lowering short-term interest rates, but the relatively strong core inflation number may mean slower rate cuts than the market is anticipating, analysts say.

"With the markets at 27,000 on the Dow and 3,000 on the S&P, they're baking in that a deal gets done with China, that the Fed cuts rates and remains dovish, and then earnings and guidance come in better than expected," said Sean Lynch, managing director of equities at Wells Fargo Private Bank. "We get a hiccup in any one of those, you'll see a little bit of a pullback in the market."

The Bank of Canada announced its decision Wednesday to maintain its benchmark rate unchanged at 1.75 per cent. That could mean the Fed rate, currently 2.5 per cent, could move closer to Canada's key rate.

TSX falls

In Toronto, stock prices slid 35 points to close at 16,529, mainly because of lower gold prices triggered by the U.S. inflation news.

The energy sector climbed after oil prices hit a six-week high because oil rigs in the Gulf of Mexico were evacuated ahead of a storm.

An incident with a British tanker in the Middle East highlighted tensions in the region, moving the price for West Texas Intermediate crude to $60.39 US a barrel.

The TSX has been a laggard compared to U.S. markets, says Barry Schwartz, portfolio manager for Baskin Wealth.

"The U.S. market has outperformed most every single other index over the last 12 years coming out of the financial crisis," he told CBC News.

"Like them or hate them, they have some of the greatest companies in technology and that's what's driving their markets higher. And for good reason — the profits are enormous."