Small Fed rate cut sends stocks down

TORONTO — The Federal Reserve’s first interest rate cut in a decade sent North American stock markets lower Wednesday as investors expressed disappointment that further cuts aren’t guaranteed.

The U.S. central bank cut its rate by 0.25 per cent and chairman Jerome Powell referred to it as a “a mid-cycle adjustment” which suggests that it won’t necessarily make further cuts.

Markets have risen on hope that a weakened economy and a trade war with China would prompt the Fed to make several rate cuts through the end of 2020.

“I think this disappointment is shortlived because I really believe that if the market anticipated two or three rate cuts this year I think they were fooling themselves,” says Allen Small, senior investment adviser at Hollis Wealth.

The S&P/TSX composite index closed down 59.49 points at 16,406.56 after hitting an intraday low of 16,282.12.

In New York, the Dow Jones industrial average was down 333.75 points at 26,864.27 for its largest daily drop since May. The S&P 500 index was down 32.80 points at 2,980.38, while the Nasdaq composite was down 98.19 points at 8,175.42.

Eight of the 11 major sectors of the TSX were lower, led by materials. It dropped 2.6 per cent as shares of several metals producers fell on lower prices, including First Majestic Silver Corp. Kinross Gold Corp. and Barrick Gold Corp.

The December gold contract was down $4.00 at US$1,437.80 an ounce and the September copper contract was down 1.25 cents at US$2.67 a pound.

Energy gained 1.2 per cent as Encana shares rose 4.9 per cent after the Calgary company swung to a US$446-million profit in the second quarter and said it remains on track to meet its production and capital investment plan for 2019 while reducing costs more than previously projected.

The September crude contract was up 53 cents at $58.58 per barrel as U.S. crude inventories fell by 8.5 million barrels for the week and the September natural gas contract was up 9.6 cents to $2.23 per mmBTU.

The Canadian dollar traded at an average of 76.06 cents US, compared with Tuesday’s average of 75.94 cents US.

While stock markets ended the day lower, they were up for a second-consecutive month in July.

Small said he doesn’t believe the U.S. rate cut will prompt any action by the Bank of Canada. He also doesn’t see how it will affect spending plans by corporations, which posted stronger-than-expected quarterly earnings.

U.S. trade talks with China ended Wednesday without a deal and will resume in early September.

The Fed action and failure to end the trade war has left investors uncertain about the future direction of markets, Small said. “The market I think is going to struggle to find a catalyst going forward.”

• Sun Life Financial Inc’s net income decreased 15.7 per cent to $595 million in the second quarter. The Toronto-based insurance provider said it earned $1 per diluted share for the period ended June 30, down from $1.16 per share or $706 million a year earlier. Excluding one-time items, adjusted profits grew 1.4 per cent to $739 million or $1.24 per share, compared with $729 million or $1.20 per share in the prior year.

• Great-West Lifeco Inc. said profits were down in the second quarter compared with last year as it took a charge and had some investment impairments. The insurance company said it had net earnings of $459 million, or 49 cents per share for the quarter ending June 30, compared with earnings of $831 million or 84 cents per share last year. Adjusted earnings, which exclude a $199 million charge from the sale of part of its U.S. operations, came in at $658 million or 70 cents per share.