TORONTO — Canada's main stock index stepped lower Wednesday despite strength in energy stocks and battery metals, while U.S. markets fell amid mixed earnings reports from big companies and rising bond yields.
The S&P/TSX composite index closed down 38.64 points at 18,947.85.
In New York, the Dow Jones industrial average was down 105.45 points at 33,035.93. The S&P 500 index was down 60.91 points at 4,186.77, while the Nasdaq composite was down 318.65 points at 12,821.22.
While tech giants Microsoft and Alphabet both beat profits estimates in earnings reports after the bell Tuesday, investors looked below the headline numbers, said Craig Fehr, investment strategist at Edward Jones.
“The markets were really looking at some of the underlying trends within cloud computing. And that's where the growth rates and outlooks were a little different,” he said.
Shares in Microsoft were up three per cent Wednesday, while Alphabet shares were down 9.5 per cent.
However, while earnings took the spotlight Wednesday, interest rates are still the dominant story on the markets overall, said Fehr.
“It's still very much about what yields are doing and what (the) implications are for the economy and the markets.”
In the coming months, however, he thinks focus will shift somewhat.
There's a widespread recognition that central banks are more or less done with their tightening cycles, said Fehr, and so the new point of uncertainty is how long banks intend to hold for.
“I think as we progress into next year, and through next year … there's going to start to emerge some clarity as to just how much fatigue is going to show up in the economy based on what central banks have done,” he said.
“And then that focus is really going to pivot to, how can companies navigate that environment, profit-wise?”
The Bank of Canada on Wednesday held its key interest rate in a widely expected move. It also lowered its economic growth forecast but projected higher inflation in the short run.
“They went out of their way to emphasize that they stand ready to continue to fight inflation, by keeping rates restrictive for as long as needed,” said Fehr.
“They have to maintain that posture of inflation fighting. But in reality, what they're acknowledging is that the tightening they've already done is having the intended effect on the economy.”
Fehr expects a similar tone from the U.S. Federal Reserve at its next meeting, especially given the surge in bond yields that’s been putting downward pressure on the markets.
“With 10-year yields surging, it's doing the job of central banks without the central banks having to actually move the policy rates dramatically higher from here,” he said.
The Canadian dollar traded for 72.56 cents US compared with 72.83 cents US on Tuesday.
The December crude oil contract was up US$1.65 at US$85.39 per barrel and the December natural gas contract was up five cents at US$3.38 per mmBTU.
The December gold contract was up US$8.80 at US$1,994.90 an ounceand the December copper contract was down three cents at US$3.59 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Oct. 25, 2023.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Rosa Saba, The Canadian Press
