Commodity producers weighed on North American indexes on Wednesday while insurance companies surged, as investors reacted to falling bond prices and a rising U.S. dollar.
The Dow Jones industrial average closed at 13,194.10, up 16.42 points or 0.1 per cent. The broader S&P 500 closed at 1394.28, down 1.67 points or 0.1 per cent. In Canada, the commodity-heavy S&P/TSX composite index closed at 12,377.90, down 159.79 points or 1.3 per cent.
The moves follow a relatively upbeat assessment of the U.S. economy by the Federal Reserve on Tuesday, as well as strong results from the Fed’s stress tests on large U.S. financial firms. Investors have begun to shelve expectations that the Fed will resort to another round of economic stimulus, driving the dollar and bond yields higher (as bond prices fall, yields rise).
The yield on the 10-year U.S. Treasury bond rose to 2.28 per cent, a substantial gain of 15.3 basis points, hitting its highest level since October. The U.S. dollar index, which measures the currency against a basket of other currencies, rose to its highest level since mid-January.
Since commodities tend to be priced in U.S. dollars, they retreated. Gold was also hurt because it is seen as a haven from loose U.S. monetary policy, which might be coming to an end. Gold fell to $1,642.90 (U.S.) an ounce, down $51.30. Crude oil fell to $105.43 a barrel, down $1.28.
Among Canadian commodity producers, Barrick Gold Corp. fell 4.5 per cent, Kinross Gold Corp. fell 5.8 per cent and Suncor Energy Inc. fell 3.8 per cent.
However, insurance firms were the big winners – surging in some cases over hopes that rising bond yields will raise their projected returns on investment portfolios and reduce the need to set aside financial reserves. Industrial Alliance Insurance and Financial Services Inc. rose 11 per cent, Manulife Financial Corp. rose 6.6 per cent and Sun Life Financial Inc. rose 4.5 per cent.
Meanwhile, U.S. banks at the centre of the stress tests were mixed. Bank of America Corp. continued its winning streak, rising 4.1 per cent. JPMorgan Chase & Co., which announced a dividend increase on Tuesday, rose just 0.4 per cent. And Citigroup Inc., which failed some aspects of the stress tests, fell 3.4 per cent.