TORONTO — Canada's main stock index posted a small loss Wednesday, weighed down by weakness in energy stocks as the price of oil fell below US$70 a barrel, while U.S. stock markets were also down after the Federal Reserve hiked interest rates again.
The Federal Reserve raised its key interest rate by a quarter of a percentage point to the highest level in 16 years, which was of little surprise to investors, who were largely predicting the move. However, the central bank stopped short of announcing a pause, saying it will consider a range of factors in future rate decisions.
At a news conference after the announcement, chairman Jerome Powell said the Fed hasn’t yet decided whether to pause rate hikes, and said it will continue to monitor economic data.
Markets moved lower over the last trading hour of the day as Powell’s comments sank in.
The S&P/TSX composite index was down 52.88 points at 20,354.68, led by the energy index, which was down 1.7 per cent.
In New York, the Dow Jones industrial average was down 270.29 points at 33,414.24. The S&P 500 index was down 28.83 points at 4,090.75,while the Nasdaq composite was down 55.18 points at 12,025.33.
There appeared to be a small selloff after investors realized they had been too optimistic about interest rate cuts later in the year, said Greg Taylor, chief investment officer at Purpose Investments. The bond market has been pricing in cuts later in 2023, he said.
“Chair Powell did a lot to push back on that concept,” he said.
“The Fed is more looking to keep rates at these levels for longer to make sure they really stamp out inflation, than to quickly pivot towards cutting. That’s probably a little more hawkish than some expected, and I think that’s why the market sold off.”
The Fed was adamant Wednesday that inflation is still too high, said Taylor, adding that rate cuts, if they happen, could also come as a result of recession.
“People need to get their head around it: rate cuts aren’t always good,” he said.
However, Taylor noted that the market’s reaction to the Fed’s decision was relatively muted compared to previous announcements, showing that the market is getting more comfortable with the messaging from the central bank.
Now that the decision is out of the way, investors can turn their attention to more earnings and economic data as the central bank’s monetary policy continues to work its way through the economy, said Taylor.
Though the major tech names had a good start to earnings season, semiconductor company AMD missed Tuesday evening, and Apple has yet to report results, noted Taylor.
Meanwhile, uncertainty remains about the health of U.S. regional banks in the continued fallout from the banking crisis, he said: “(It’s) probably too soon to say it’s fully over yet.”
And crude sank below US$70 a barrel Wednesday, a selloff likely fueled by recession fears, he said.
The Canadian dollar traded for 73.44 cents US,compared with 73.43 cents US on Tuesday.
The June crude contract was down US$3.06 at US$68.60 per barreland the June natural gas contract was down four cents at US$2.17 per mmBTU.
The June gold contract was up US$13.70 at US$2,037.00 an ounce and the July copper contract was down two cents at US$3.85 a pound.
This report by The Canadian Press was first published May 3, 2023.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Rosa Saba, The Canadian Press
