North American markets were mostly flat Thursday, after strong early-morning gains, a possible sign of diminishing euphoria from the U.S. Federal Reserve’s unexpected decision to continue with its monetary stimulus program.
The S&P/TSX composite index fell 5.18 points to 12,926.22, after a nearly three-digit gain on Wednesday. The Canadian dollar dipped 0.05 of a cent to 97.78 cents (U.S.).
The U.S. central bank had been widely expected to announce a scaling back of its $85-billion of monthly bond purchases, which have put downward pressure on long-term borrowing rates.
Instead, the Fed did nothing Wednesday and Fed chairman Ben Bernanke voiced worries over the state of the country’s economic recovery and the still-high levels of unemployment.
“Given the extreme moves in financial markets overnight and this morning, some participants have been on the receiving end of a short and sharp lesson on the dangers of attempting to second guess the U.S. Federal Reserve,” said Brenda Kelly, a senior market strategist at IG.
The news sent U.S. markets up sharply, resulting in the Dow Jones industrial index and S&P 500 to close at record highs.
But by mid-day Thursday, the Dow Jones lost 16.05 points to 15,660.89, the Nasdaq was up 4.72 points to 3,788.36 and the S&P 500 climbed 0.73 of a point to 1,726.25.
Bernanke said there was no fixed date or “magic number” for the bank to slow or end its bond purchases. He added that the Fed could still move to taper later this year but that the program won’t necessarily end when U.S. unemployment reaches seven per cent. It is now at 7.3 per cent.
The continued stimulus will likely plump up stock markets in the short-term, but some say that the Fed’s decision actually paints a pretty bleak picture of the U.S. economy.
After the surprise dies down, investors will no doubt be turning their attention back to when the Fed may actually announce that it’ll pull back on its purchases.
The group meets again in October, which some say may be too soon for such an announcement. The bank then meets again in December.
On the TSX, the gold sector saw the worst declines, as it fell 1.63 per cent. Shares in Barrick Gold Corp. dropped 2.52 per cent or 52 cents to $20.14 and shares in Goldcorp. Inc. also dipped 2.21 per cent or 62 cents to $28.57. December bullion climbed $59.40 to $1,367 9 (U.S.) an ounce.
The metals and mining sector was up 1.04 per cent, as December copper saw an uptick of seven cents to $3.35 (U.S.) a pound. The energy sector fell 0.06 per cent, while the October crude contract climbed 18 cents to $108.22 (U.S.) a barrel.
An onslaught of U.S. economic data was released Thursday, pointing to signs that the world’s largest economy is faring okay.
The Conference Board says that its index of leading indicators increased 0.7 per cent in August, compared to July, when the index had risen 0.5 per cent. Conference Board economist Ken Goldstein says the two months of gains pointed to “more pep” in the pace of economic activity.
The latest weekly U.S. unemployment figures also showed that the number of people applying for benefits last week rose by 15,000 to a seasonally adjusted 309,000. The level is only slightly above the previous week’s 294,000, the lowest in six years.
While U.S. home sales rose last month to the highest level since February 2007 as buyers rushed to close deals before interest rates rise further. The National Association of Realtors says sales of previously occupied homes rose 1.7 per cent to a seasonally adjusted annual rate of 5.48 million in August. That is consistent with a healthy market.
In Canada, the number of people receiving regular employment benefits fell 2.1 per cent in July to 503,900. The agency says the decline brings the number of beneficiaries to a level similar to that observed before the start of the labour-market downturn in 2008. On a year-over-year basis, the number of people on EI dropped 5.7 per cent from July 2012.
In corporate news, the U.S.’s largest bank, JPMorgan Chase & Co., is paying $920-million in penalties and will be admitting wrongdoing over a $6-billion trading loss last year.
Regulators said the bank failed to properly supervise traders in its London operation, allowing them to assign inflated values to trades and cover up losses as they ballooned. Two of the traders are facing criminal charges of falsifying records to hide the losses.