The Globe and Mail (BC Edition)
Equities close lower, trade choppy after Fed rate cut
U.S. and Canadian stocks closed with modest losses on Wednesday, well off their intraday highs, after the Federal Reserve cut interest rates by 50 basis points, the high side of estimates for its first cut in more than four years.
Trading was choppy. Prior to the Fed announcement, the S&P 500 oscillated between modest gains and losses. The benchmark U.S. index rose as much as 1 per cent after the announcement before paring gains and finally closing lower. The Dow, S&P 500 and S&P/TSX Composite Index hit intraday highs before weakening.
Citing a “greater confidence” that inflation was moving toward the central bank’s 2-per-cent target, the Fed cut rates by half a percentage point, as it now focuses on keeping the labour market healthy.
Market expectations for the size of the rate cut had been volatile in recent days, pricing in about a 65-per-cent chance for a 25 basis point cut last week to a 57-per-cent chance for the larger 50 basis point cut earlier on Wednesday, according to CME’s FedWatch Tool.
The Dow Jones Industrial Average fell 103.08 points, or 0.25 per cent, to 41,503.10, the S&P 500 lost 16.32 points, or 0.29 per cent, to 5,618.26 and the Nasdaq Composite lost 54.76 points, or 0.31 per cent, to 17,573.30.
The S&P/TSX Composite Index ended down 85.10 points, or 0.4 per cent, at 23,592.60.
Markets are now fully pricing in a cut of at least 25 basis points at the Fed’s November meeting, with a roughly 35 per-cent chance for another 50 basis point cut.
“It’s amazing to me how even when markets get what they seemingly want, they immediately want more,” said Steve Sosnick, chief market strategist at Interactive Brokers in Greenwich, Conn. “It’s important to note that stocks are not rocketing ahead [at least not yet] after getting what they wanted. After seven straight up days, a lot of good news was priced in.”
After the rate cut announcement, Fed Chair Jerome Powell said the central bank’s forecast for the path of interest rates did not imply the need for urgent action.
Markets have rallied this year, with all three major U.S. indexes setting record highs on prospects of lower interest rates as inflation moderated and the jobs market showed gradual signs of cooling.
In Toronto trading Wednesday, the energy sector fell 0.5 per cent as the price of oil settled 0.4 per cent lower at US$70.91 a barrel. Industrials lost 0.7 per cent and heavily weighted financials were down 0.3 per cent.
In Canadian corporate news, Rogers Communications Inc. reached a deal to buy BCE Inc.’s stake in Maple Leaf Sports & Entertainment (MLSE). Shares of Rogers fell 2.7 per cent, while BCE’s shares were up 3.3 per cent.
It’s amazing to me how even when markets get what they seemingly want, they immediately want more.
STEVE SOSNICK
CHIEF MARKET STRATEGIST AT INTERACTIVE BROKERS