S&P/TSX composite and U.S. markets reverse morning gains, close down

Canada’s main stock index saw a loss of more than half a per cent Wednesday, reversing slight mid-morning gains, while U.S. markets were also down at the close after beginning the day on a more optimistic streak.

The S&P/TSX composite index was down 131.81 points at 19,891.65.

In New York, the Dow Jones industrial average was down 142.29 points at 33,966.35. The S&P 500 index was down 24.33 points at 3,995.32, while the Nasdaq composite was down 85.92 points at 11,170.89.

Mackenzie Investments economist Jules Boudreau said the market is holding up surprisingly well given Wednesday was the last Federal Reserve rate hike of the year.

“It’s a bit of a puzzle,” he said.

Boudreau said he had expected a more intense reaction from markets to Wednesday’s rate decision from the Federal Reserve.

While the half percentage point hike itself wasn’t a surprise, Fed Chair Jerome Powell’s comments were quite hawkish, noted Boudreau, making clear the Fed’s intention to continue raising rates in 2023.

“I would say that in 2022, we have not had a Fed meeting where the market reaction was as tame as it was now,” he said. “Overall, I would say it’s surprising that markets are not down more.”

For example, the Dow went down by more than 1.5 per cent the day of the last Fed rate hike, compared to less than half a per cent this time around.

This tame reaction may be due to overall positive sentiment, seasonal trends, and light positioning among investors, said Boudreau.

“There’s less room for markets to go down on news, like we’re seeing today. And at the other end of it, when we get positive news, we’re much more likely to get these big pops like we’ve been seeing around CPI release dates over the past few months and previous Fed messaging.”

The past week has been a steady one for the TSX, he said, with volatility at pre-pandemic lows.

Powell’s comments echoed Bank of Canada Governor Tiff Macklem’s speech Monday where he warned that inflation will be hard to fight, but his U.S. counterpart was more aggressive, said Boudreau. The Bank of Canada has said it’s going to be data-driven in its rate decisions going forward, leaving room for the possibility that it won’t raise rates further, while the Fed’s path is more clear, he said.

The Canadian dollar traded for 73.74 cents US compared with 73.82 cents US on Tuesday.

The January crude contract was up US$1.89 at US$77.28 per barreland the January natural gas contract was down 51 cents at US$6.43 per mmBTU.

The spread between WTI and Canadian benchmarks is wide right now due to the Keystone pipeline leak, said Goudreau. He said the leak also helps explain a big part of overall oil prices rising Wednesday despite higher inventory, and why Canadian energy stocks aren’t having as good a day as oil prices are.

The TSX energy index was essentially unchanged Wednesday, while most other sectors posted small losses.

The February gold contract was down US$6.80 at US$1,818.70 an ounce and the March copper contract was up four cents at US$3.88 a pound.