Canada’s main stock ended lower on Thursday, led by declines for industrial and technology shares, as a large increase in U.S. producer prices complicated the inflation outlook for the Federal Reserve ahead of a major economic gathering next week.
The S&P/TSX composite index was down 77.44 points, or 0.3 per cent, at 27,915.99, after posting on Wednesday a record closing high.
“Markets are waiting to see what the central bankers have to say at Jackson Hole next week, and we’re in that lull after most of the quarterly earnings results have come out, although not all of them,” said Brian Madden, chief investment officer at First Avenue Investment Counsel Inc. The Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyoming is due to be held August 21-23. The event is often attended by the world’s most influential monetary policymakers.
U.S. producer prices increased by the most in three years in July. The data is likely to bolster concerns among Fed policymakers that rising inflation remains a risk, intensifying debate over the rationale for an interest rate cut next month. The technology sector fell 3.1 per cent, its second-straight day of declines, and industrials ended 1.1 per cent lower. Bird Construction shares tumbled 15.4 per cent after the company’s quarterly profit missed estimates. “While the index is down overall, there’s a bit of a defensive rotation going on within the market,” Madden said. Defensive stocks, such as telecom companies, utilities and real estate tend to pay high dividends and be less economically sensitive than the broader market. The communication services index rose 0.8 per cent, the utilities group was up 0.2 per cent and real estate ended 0.3 per cent higher.
Energy also posted gains, rising 0.4 per cent, as the price of oil settled 2.1 per cent higher at $63.96 a barrel ahead of a meeting on Ukraine between U.S. President Donald Trump and his Russian counterpart Vladimir Putin.
Most stocks fell on Wall Street Thursday after a disappointing report said inflation was worse last month at the U.S. wholesale level than economists expected. But gains for Amazon and some other influential Big Tech companies helped mask the losses.
Seven out of every 10 stocks within the S&P 500 fell, though the index edged up by less than 0.1 per cent to set another all-time high. The Dow Jones Industrial Average dipped 11 points, or less than 0.1 per cent, and the Nasdaq composite dipped by less than 0.1 per cent from its record set the day before.
The inflation report said that prices jumped 3.3 per cent last month at the U.S. wholesale level from a year earlier. That was well above the 2.5 per cent rate that economists had forecast, and it could hint at higher inflation ahead for U.S. shoppers as it makes its way through the system.
The data forced traders to second guess their widespread consensus that the Federal Reserve will cut interest rates at its next meeting in September. Lower rates can boost investment prices and the economy by making it cheaper for U.S. households and businesses to borrow to buy houses, cars or equipment, but they also risk worsening inflation.
“This doesn’t slam the door on a September rate cut,” but it may raise some doubt, according to Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley.
Traders now see a 7.4 per cent chance that the Fed may hold rates steady in September, according to data from CME Group. A day earlier, they were betting on a 100 per cent certainty that the Fed would cut its main rate for the first time this year.
Higher interest rates drag on all kinds of companies by keeping the cost to borrow high. They can hurt smaller companies in particular because they often need to borrow to grow. The Russell 2000 index of smaller U.S. stocks tumbled a market-leading 1.2 per cent.
Thursday’s disappointing data followed an encouraging update earlier in the week on prices at the consumer level. A separate report on Thursday, meanwhile, said fewer U.S. workers applied for unemployment benefits last week. That’s a good sign for workers, indicating that layoffs remain relatively low at a time when job openings have become more difficult to find.
But a solid job market could also give the Fed less reason to cut interest rates in the short term.
The data helped send Treasury yields higher in the bond market. The yield on the 10-year Treasury climbed to 4.28 per cent from 4.20 per cent just before the data reports’ release and from 4.24 per cent late Wednesday.
On Wall Street, Tapestry tumbled after the company behind the Coach and Kate Spade New York brands showed it’s feeling the pressure of tariffs.
It detailed how much profit it could lose in its upcoming fiscal year because of tariffs and duties, and its forecast for profit fell short of analysts’ expectations even though its forecast for revenue came in above. Its stock fell 15.7 per cent, despite it also reporting a stronger profit for the latest quarter than analysts expected.
Deere fell 6.8 per cent even though the machinery maker likewise delivered a better profit than expected. There, too, the focus was on where profits are heading. It cut the top end of its forecasted range for profit this fiscal year and said its customers “remain cautious amid ongoing uncertainty.”
On the winning side of Wall Street was Fossil Group, which jumped 29.8 per cent after the seller of watches and other accessories reported better profit than expected. It also announced a plan to strengthen its finances, while trimming its forecast for how much it expects worldwide net sales to fall this year.
Big Tech stocks also helped mask Wall Street’s losses. Amazon rose 2.9 per cent to add to its gains from the prior day when it announced same-day delivery of fresh groceries in more than 1,000 cities and towns.
Because Amazon is so huge, with a market value of $2.45 trillion, the movements for its stock carry much more weight on the S&P 500 than the typical company’s.
All told, the S&P 500 rose 1.96 to 6,468.54 points. The Dow Jones Industrial Average edged down 11.01 to 44,911.26, and the Nasdaq composite dipped 2.47 to 21.710.67.
In stock markets abroad, indexes were mixed across Asia and Europe ahead of a key meeting between U.S. President Donald Trump and Russian President Vladimir Putin on Friday.
Reuters and The Associated Press