U.S. stocks closed well off earlier highs after a choppy session on Wednesday, as Federal Reserve Chair Jerome Powell chilled expectations the central bank might be poised to cut rates at its September meeting. Canadian stocks also closed near their lows for the day, marking their biggest drop in 10 weeks.
In keeping rates unchanged, as was widely expected, the central bank said “the unemployment rate remains low, and labour market conditions remain solid. Inflation remains somewhat elevated,” in a split decision that saw two governors dissent.
U.S. stocks were modestly higher before the Fed statement as investors assessed the first reading of second-quarter economic growth, which was stronger than expected, but underlying details indicated an economy that was likely losing strength.
However, stocks retreated after Powell said it was too soon to say whether the Fed would cut rates at its next meeting in September and noted that current policy was modestly restrictive but has not been holding back the economy.
After market expectations for a September rate cut climbed to about 68% following the Fed statement, they fell below 50% in the wake of Powell’s comments, according to the LSEG data.
“There wasn’t too much of a change in the statement here, still showing concerns about how these tariff policies will come through and probably yet to rely on the data that’s come through. You can see that just in the GDP report, how much noise is going on in each of these releases right now,” said JP Powers, chief investment officer at RWA Wealth Partners in Boston.
“If I were Powell, I don’t know how much he thinks about his legacy, but I think he’s going to err on the side of probably being too late to cut rates here on his way out rather than risk any flare-up just as he’s heading off into the sunset.”
Earlier data in the ADP employment report showed U.S. private payrolls grew by 104,000 in July, topping forecasts of 75,000, the latest in a string of labor market data this week before Friday’s government payrolls report.
The Dow Jones Industrial Average fell 171.71 points, or 0.38%, to 44,461.28, the S&P 500 lost 7.96 points, or 0.12%, to 6,362.90 and the Nasdaq Composite gained 31.38 points, or 0.15%, to 21,129.67. The S&P 500 had risen as much as 0.4% on the session before fading.
The S&P/TSX composite index ended down 169.92 points, or 0.6%, at 27,369.96, after posting a record closing high on Tuesday. It was the index’s biggest decline since May 21.
The BoC also remained on the sidelines Wednesday. It left its benchmark interest rate at 2.75% for the third straight policy decision and said that the risk of a severe and escalating global trade war had diminished.
The materials group, which includes metal mining shares, dropped 2.1% as gold and copper futures prices fell in New York, with the latter down nearly 20%. Copper’s plunge came after U.S. President Donald Trump announced he was excluding the most widely imported form of copper from his planned import tariffs.
Heavily weighted financials were down 0.6% in Toronto and technology ended 0.5% lower. Eight of the index’s 10 major sectors lost ground.
Capital Power Corp was among the biggest decliners. Its shares were down 6.9%% after the company reported a quarterly loss.
Megacap companies Microsoft and Meta Platforms were both up more than 6% in extended trade after reporting quarterly results while investors were still awaiting earnings from Amazon and Apple on Thursday. The recent batch of corporate earnings initially helped buoy equities, with Teradyne surging 18.9% as one of the best performers on the S&P 500 after its quarterly results.
Solid earnings from a host of consumer-facing names also put the resilience of shoppers on display.
Starbucks posted better-than-expected third-quarter sales, although its shares edged down 0.2%, while Hershey gained 1.4% after the chocolate and snacks company reported results that topped forecasts. VF Corp, parent of Vans, beat quarterly revenue estimates and closed up 2.6%.
The copper tariff news weighed heavily on the S&P 500 materials sector, which fell 2%, as Freeport-McMoRan shares tumbled 9.5%.
Declining issues outnumbered advancers by a 2.52-to-1 ratio on the NYSE, while advancing issues outnumbered decliners by a 2.05-to-1 ratio on the Nasdaq. The S&P 500 posted 31 new 52-week highs and 15 new lows, while the Nasdaq Composite recorded 73 new highs and 104 new lows. Volume on U.S. exchanges was 17.66 billion shares, compared with the 17.87 billion average for the full session over the last 20 trading days.
Reuters, Globe staff