The close: Wall Street drops after Fed chair dampens rate-cut hopes

Global equities lost ground on Wednesday, snapping a three-day winning streak after the U.S. Federal Reserve held rates steady as expected but comments from Fed Chairman Jerome Powell cast doubt on whether the central bank’s next move would be a rate cut.

The Fed made no move on interest rates as policymakers took heart in continued U.S. job gains and economic growth and held out hope that weak inflation will edge higher.

Stocks initially added to gains, U.S. Treasury yields fell and the dollar stayed weaker after the statement. However, all reversed course after comments from Powell suggesting a recent decline in inflation could be transitory.

Traders of U.S. short-term interest rate futures eased off on bets the Federal Reserve will cut rates before the end of the year, but are still expecting a cut by as early as the Fed’s December meeting.

“In the statement the Fed worried about inflation being below their target, but in the press conference Powell said they view that weakness as transitory and they aren’t leaning more towards a cut then they were before,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.

“So the fact that he’s basically saying we aren’t closer to a cut then we were before made the market selloff a few points.”

President Donald Trump recently called for the Fed to cut interest rates and renew its quantitative easing program.

Early gains were supported by gains in Apple, which rose more than 7 per cent before closing up 4.91 per cent as the top boost to each of the major indexes on Wall Street. The iPhone maker beat depressed expectations despite a record drop in phone revenue, gave an upbeat assessment of its China business, said it would buy back $75 billion in shares and hiked its dividend. The gains pushed Apple closer to $1-trillion market capitalization yet again.

Sentiment also received a boost from early data on the labor market, as a report by payrolls processor ADP showed U.S. private employers added 275,000 jobs in April, well above the 180,000 estimate.

Still, reports on construction spending and U.S. manufacturing came in weaker than expected, sending conflicting signals about the strength of the economy.

S&P 500 earnings are now expected to show growth of 0.5 per cent for the quarter, according to Refinitiv data. At the start of April, earnings were expected to decline by 2 per cent, sparking some concerns about the possible start of an earnings recession.

The Dow Jones Industrial Average fell 162.84 points, or 0.61 per cent, to 26,430.07, the S&P 500 lost 22.1 points, or 0.75 per cent, to 2,923.73 and the Nasdaq Composite dropped 45.75 points, or 0.57 per cent, to 8,049.64.

Resource stocks pushed Canada’s main stock index lower on Wednesday.

The Toronto Stock Exchange’s S&P/TSX composite index was down 77.98 points, or 0.47 per cent, at 16,502.75.

The materials sector, which includes precious and base metals miners and fertilizer companies, lost 1.6 per cent as gold futures fell.

Energy stocks dropped 2.8 per cent, weighed down by lower U.S. crude prices.

The technology sector gained 0.9 per cent, the most among the three major sectors trading higher. Shopify Inc. was up 1.6 per cent, while Constellation Software Inc. was up 2.1 per cent.

Leading the index were Centerra Gold Inc., up 6.6 per cent, Cascades Inc., up 5.4 per cent, and Alacer Gold Corp., higher by 3.7 per cent.

Lagging shares were Osisko Gold Royalties Ltd., down 8.6 per cent, Ero Copper Corp., down 7.0 per cent, and First Quantum Minerals Ltd., lower by 6.9 per cent.

Trading was thin in Europe, with most markets closed for the May Day holiday and only London and Copenhagen open for trading. UK stocks closed lower, with London’s FTSE 100 down 0.44 per cent as it ended at a 1-month low.

The pan-European STOXX 600 index lost 0.07 per cent and MSCI’s gauge of stocks across the globe shed 0.43 per cent.

The weaker data on construction and manufacturing dented the dollar and U.S. Treasury yields fell to their lowest level since April 1 after the Fed statement before changing course after Powell’s comments.

The dollar index rose 0.18 per cent, with the euro down 0.19 per cent to $1.1194.

Benchmark 10-year notes last rose 1/32 in price to yield 2.5035 per cent, from 2.507 per cent late on Tuesday.

Oil prices initially declined after data from the U.S. Energy Information Administration showed U.S. crude production output set a new record last week but ended mixed as declines were tempered by the intensifying crisis in Venezuela and the stopping of Iranian oil sanction waivers by Washington.

U.S. crude settled down 0.49 per cent at $63.60 per barrel and Brent was last at $72.18, up 0.17 per cent on the day.

Reuters