Canada's main stock index gained 1.6 per cent Tuesday in a broad-based rally led by financials, base metals and utilities, while U.S. markets also rallied after the latest release of inflation data helped boost hope that the central bank is done hiking interest rates.

Headline inflation in the U.S. didn’t rise between September and October, according to the latest release Tuesday. Year-over-year inflation was 3.2 per cent in October, the smallest rise since June.

While the headline number was expected to be lower because of oil prices, what really sparked optimism among investors was the softening in core inflation, said Allan Small, senior investment adviser at iA Private Wealth.

Core inflation, which excludes food and energy, slowed in October to 0.2 per cent on a monthly basis. On an annual basis it was four per cent, down from 4.1 per cent in September.

“I think that tells us that we’re starting to see some softening in services inflation, which is where the inflation has been most stubborn,” said Small. 

The data shows that the U.S. Federal Reserve’s monetary policy is working, and that a soft landing for the economy is still within reach, he said. It also helps shrink the possibility that more interest rate hikes will be needed to successfully quell inflation.

The S&P/TSX Composite Index closed up 314.58 points at 20,023.73.

In New York, the Dow Jones Industrial Average was up 489.83 points, or 1.4 per cent, at 34,827.70. The S&P 500 Index was up 84.15 points, or 1.9 per cent, at 4,495.70, while the Nasdaq Composite was up 326.64 points, or 2.4 per cent, at 14,094.38.

Investors will look to upcoming reports on the Producer Price Index and retail sales to help confirm what Tuesday’s inflation data shows, said Small. Retail sales are expected to slow, he said, noting that in third-quarter earnings for retail companies, the pressure on consumers’ budgets is starting to show.

November is on track to be a much better month for markets than October, after the past two weeks have both ended on a positive note.

“Usually October is a bit of a turnaround month,” said Small, adding it was a little disappointing that didn’t happen this time around. 

“But we’re getting that turnaround and a lot more in November,” he said. 

The Canadian dollar traded for 72.86 cents U.S. compared with 72.36 cents U.S. on Friday.

The December crude contract was unchanged at US$78.26 per barrel and the December natural gas contract was down nine cents at $3.11 per mm/BTU.

The December gold contract was up US$16.30 at US$1,966.50 an ounce and the December copper contract was up two cents at US$3.68 a pound.

With files from The Associated Press

This report by The Canadian Press was first published Nov. 14, 2023.