The Dow ended lower and the S&P 500 finished close to flat on Wednesday after the Federal Reserve cut interest rates but Fed Chair Jerome Powell said another rate cut in December is far from assured.
The Nasdaq was higher, boosted by Nvidia, which during the session rose past US$5 trillion in market valuation.
The TSX closed decidedly lower, underperforming all three U.S. indexes, as the Bank of Canada also cut its key lending rate while cautioning it could be its last move of the current easing cycle.
The Fed cut rates by 25 basis points, noting the limited data visibility due to the current U.S. government shutdown, and said it is ending the drawdown of its US$6.6 trillion balance sheet, also known as quantitative tightening (QT) amid evidence that money market liquidity conditions have begun tightening and bank reserve levels are dropping.
Stocks initially held gains after the statement but retreated after Powell said “a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course.” This sent U.S. Treasury yields and the dollar higher.
“He has basically done that in basically every press conference in which they have had a rate move, he has walked back market expectations for the next meeting,” said Tony Welch, chief investment officer at SignatureFD in Atlanta.
“We do think the risk to inflation in 2026 is higher and I do believe that December could end up being the last cut in this cycle. The market is expecting three cuts next year, and the market may be sorely disappointed on that.”
Markets were pricing in a roughly 85% chance of a December cut, which stumbled to about 65% following Powell’s comments, according to CME’s FedWatch Tool.
U.S. stocks have been rallying to record levels recently on cooling U.S.-China trade tensions, expectations for rate cuts from the Fed, outsized spending related to artificial intelligence, and a solid start to the corporate earnings season.
Nvidia became the first company to cross the US$5 trillion valuation mark on Wednesday. Its shares ended up 3%, a day after jumping 5% as CEO Jensen Huang said the AI chip leader will build seven new supercomputers for the U.S. Department of Energy, and that the company has $500 billion in bookings for its chips.
After the closing bell, Microsoft shed about 3%, Alphabet gained nearly 4% and Meta stumbled more than 6% as each of the megacap companies posted quarterly results.
The Dow Jones Industrial Average fell 74.37 points, or 0.16%, to 47,632.00, the S&P 500 dropped 0.30 points, or 0.00%, to 6,890.59 and the Nasdaq Composite rose 130.98 points, or 0.55%, to 23,958.47.
The S&P/TSX composite index ended down 274.90 points, or 0.9%, at 30,144.78. The Bank of Canada signaled an end to its interest rate cutting cycle after lowering its benchmark rate to a three-year low of 2.25%, and cut its 2025 growth forecast to 1.2% from 1.8% in January.
“The worrying thing is (interest rates) were cut because our economy is weakening as this trade dispute continues” with the United States, said Michael Sprung, president at Sprung Investment Management. “The other thing that is really on investors’ minds in Canada is the budget next week, rumors have it that it could be an extremely high deficit again.”
Canada is due to present its federal budget on Tuesday. Economists forecast the government’s fiscal deficit for the 2025-26 fiscal year will be between C$70 billion and C$100 billion, a massive jump from the projected C$43 billion for the fiscal year that ended March 2025.
Consumer staples posted the biggest decline among the 10 major sectors in Toronto, falling 3.7%.
Technology lost 1.7%, with shares of Constellation Software Inc down nearly 8%. Industrials declined 1.6% and heavily weighted financials ended 1.3% lower. Energy was a bright spot. It added 1%. The materials group, which includes metal-mining shares, also notched gains, adding 0.3%, as copper prices rose.
The dollar index, which measures the greenback against a basket of currencies extended gains after Powell’s comments and was up 0.54% to 99.21 by late day.
The Canadian dollar weakened 0.04% versus the greenback to C$1.395 per dollar.
In U.S. Treasuries, the yield on benchmark U.S. 10-year notes extended gains after the policy announcement along with the Fed chair’s comments, and was last up 9.5 basis points at 4.0785, its biggest one-day jump since June 6.
Canadian bond yields also rose sharply, first after the Bank of Canada suggested it may be finished cutting rates, and then extended the move after the Fed commentary. The five-year bond yield was up 11 basis points by late afternoon.
U.S. crude settled up 0.55% to $60.48 a barrel and Brent rose to settle at $64.92 per barrel, up 0.81% on the day on a large drop in U.S. stockpiles and optimism surrounding trade policies.
Reuters, Globe staff