The United States Federal Reserve Board building is shown in Washington October 28, 2014. The timing of the Fed’s eventual rate move has been a top concern for investors.Gary Cameron/Reuters
North American stocks fell – with the Dow Jones industrial average suffering its biggest two-day loss in a year – as energy shares plunged and the U.S. Federal Reserve cited international risks to the American economy amid concerns about weakness in multinational earnings.
In New York, energy companies slumped 3.9 per cent as a group after oil retreated to below $45 (U.S.) a barrel. Apple Inc. climbed 5.7 per cent after reporting a record $18-billion (U.S.) in quarterly profit, one of the biggest in corporate history. Boeing Co. advanced 5.4 per cent as it posted a quarterly profit that beat analysts' estimates.
The Dow Jones industrial average lost 192.88 points, or 1.1 per cent, to 17,194.33. The gauge fell 2.8 per cent over two days.
The Standard & Poor's 500 Index fell 1.4 per cent to 2,002.24 and the Nasdaq 100 index dropped 0.6 per cent, erasing an earlier rally of 1.7 per cent. The Chicago Board Options Exchange Volatility Index, known as the VIX, added 17 per cent to 19.09, its biggest jump of the year.
The TSX composite index dropped 231 points, or 1.6 per cent, to 14,602.88 -- the most in three weeks, halting a five-day rally, as energy producers sank with the price of crude and Statistics Canada lowered its estimate of jobs creation in 2014.
The Canadian dollar tumbled below the 80-cent mark as oil plumbed new depths.
The loonie hit a low point of 79.80 cents (U.S.), its lowest point over the past year, having been as high as 80.71 cents earlier in the day. It closed at 79.87 cents (U.S.), down about 0.75 of a cent, its lowest level in nearly six years.
The Fed also boosted its assessment of the economy and labour market, even as it expects inflation to decline further.
Fed officials are confronting divergent economic forces as they weigh the timing of the first interest-rate increase since 2006. Surprisingly strong job gains argue for tightening sooner, while inflation held down by a plunge in oil prices and a cooling global economy provides grounds for delay.
The Fed acknowledge global risks, saying that it will take into account readings on "international developments" as it decides how long to keep rates low.
"On balance, I viewed it as slightly hawkish," Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said by phone. "The equity markets view it as a June hike still being a potential outcome. It's basically interpreting that the Fed will plow ahead with rate hikes despite low inflation and international woes."
Policy makers gathered as recent labour market reports show fresh strength, with the jobless rate at a six-year low of 5.6 per cent. U.S. employers hired 252,000 workers last month to cap the biggest annual gain since 1999 with almost 3 million jobs.
"The Fed continued to emphasize that any rate hike decisions will be very data-dependent, which has been the norm for quite some time," Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer's Investment Research Inc., said in a phone interview. "People are looking closely at earnings, which has been the story of the volatility in the past week or two. Oil and the strong U.S. dollar are also creating a drag on large multinational companies."
The S&P 500 has more than tripled from its March 2009 low, buoyed by three rounds of stimulus from the Fed. The index is down 3.6 per cent from an all-time high reached in December, after falling as much as 4.7 per cent from the peak earlier this month.
As the U.S. has ended its bond-buying program, the European Central Bank is expanding its stimulus plan. The ECB announced last week it would spend €60-billion ($68-billion) a month starting in March on purchases of debt to ward off the threat of deflation in the euro area.
Equities opened higher on Wednesday as Apple and Boeing rallied amid quarterly results, a day after benchmark indexes tumbled on concern that a stronger dollar is eroding profits at large companies.
While the dollar's climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 per cent of Standard & Poor's 500 Index members have still beaten analysts' estimates so far this earnings season, according to data compiled by Bloomberg.
Nine of 10 main industries in the S&P 500 fell. Technology shares had the only gain, increasing 0.7 per cent after the biggest drop in more than three years Tuesday.
In New York, Apple jumped 6.3 per cent. Net income surged 38 per cent, fuelled by sales of larger-screened iPhones and refreshed Mac computers that Apple had unveiled in September, part of a barrage of new products from Chief Executive Officer Tim Cook as he sought to revitalize the company's revenue.
Boeing gained 6.2 per cent, the most since 2011, as it beat analysts' estimates and predicted it would make good in 2015 in converting a record jetliner-order backlog into cash. Investors have been waiting to see Boeing start generating more cash from its plane orders and stem losses on the 787 Dreamliner.
Energy shares lost 3.5 per cent, the most in three weeks, as oil tumbled as U.S. inventories rose to a three-decade high. Exxon Mobil Corp., Chevron Corp. and Schlumberger Ltd. fell at least 2.7 per cent.
Yahoo! Inc. fell 2.4 per cent, erasing an earlier rally of 4.9 per cent. The company said Tuesday it will spin off its remaining stake in Alibaba Group Holding Ltd. The tax-free spinoff will place Yahoo's holding in the Chinese e-commerce company into a new firm called SpinCo. That firm will own all of Yahoo's shares in Alibaba, valued at about $40-billion.
Oil prices retreated $1.78 to $44.45 (U.S.) a barrel, the lowest close since early March 2009, after the U.S. Energy Information Administration said U.S. oil supplies rose by 8.9 million barrels last week. That was far higher than the 3.5-million-barrel increase that economists had expected.
Prices have plunged 55 per cent from the highs registered last summer because of a glut of supply on world markets.
In Toronto, the energy sector dropped 4.85 per cent. Cenovus Energy lowered its 2015 capital budget to between $1.8 billion and $2 billion because of the price slump. That figure is more than 15 per cent below last year's spending levels. Its stock dropped $1.73 to $22.94.
Legacy Oil & Gas Inc. and Bellatrix Exploration Ltd. plunged more than 14 per cent as U.S. oil tumbled 3.9 per cent.
The gold sector fell three per cent as February bullion declined $5.80 to US$1,285.90 an ounce. Iamgold Corp. retreated 8.6 per cent as gold declined for a third time in four sessions.
March copper edged two cents higher to $2.48 (U.S.) a pound and the base metals group was down 1.5 per cent.
Statistics Canada reduced its estimate of job creation last year by about a third, to 121,300 jobs from 185,700 with the unemployment rate at 6.7 per cent. The latest jobs report also now shows a 11,300 job loss in December, compared with the initially reported loss of 4,300.
"In light of the magnitude of the changes, the Bank of Canada's decision to cut rates may now look slightly less surprising," said Nick Exarhos, an economist with CIBC World Markets Inc. in a report.
The Bank of Canada unexpectedly cut its key interest rate to 0.75 per cent from 1 per cent last week amid concern the slump in oil prices is threatening economic growth.
Sun Life Financial Inc. slipped 0.3 per cent after agreeing to buy Ryan Labs Inc., which manages about $5.1 billion in assets in the U.S. Terms were not disclosed.
With files from The Canadian Press