Canada’s main stock index fell on Monday, as the technology and health-care sectors led broad-based declines ahead of domestic inflation data that could help guide expectations for the Bank of Canada’s interest rate outlook. Major U.S. indexes were nearly unchanged as investors awaited the U.S. Federal Reserve’s monetary policy decision on Wednesday.
The S&P/TSX Composite Index ended down 129.51 points, or 0.6%, at 20,492.83, after posting on Friday its highest closing level in six weeks.
Canada’s consumer price index report for August, due on Tuesday, is expected to show the annual rate of inflation rising to 3.8% from 3.3% in July.
“There’s no doubt that inflation is going to continue to show a tick higher on a year-over-year basis,” said Philip Peturrson, chief investment strategist at IG Wealth Management. “The question is whether the BoC will recognize that this is more (due to) base effects, or if they will feel that they need to respond to this.”
The Toronto market’s ten major sectors lost ground, with technology down nearly 2% as shares of e-commerce company Shopify Inc lost 5.4%.
Health-care was down 3.9%. It was pressured by a 14.2% decline in the shares of cannabis firm Tilray Brands Inc after Kerrisdale Capital said it was short the stock.
Shares of Bank of Montreal fell 0.9% after the third-largest Canadian lender said it was winding down its indirect retail auto finance business and shifting focus to other areas.
Financials, the most heavily-weighted sector on the TSX, were down 0.4%.
All three major U.S. stock indexes ended a choppy session essentially flat, with few catalysts and little conviction heading into the Fed’s two-day monetary policy meeting.
“(Fed Chairman Jerome) Powell can spark big moves in either direction with his comments and you don’t want to get caught on the wrong side of it,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
The central bank has vowed to remain agile with respect to economic data, which has shown signs that core inflation remains on its meandering descent back toward the Fed’s annual 2% target, and suggests the U.S. economy remains on firm footing.
Against this backdrop, growing jitters that a stalemate on Capitol Hill could result in a potential government shutdown had market participants on edge.
The Fed’s policy meeting is expected to culminate in a rate hike pause, leaving the Fed funds target rate unchanged for the second time since March 2022, when the central bank fired its opening salvo in its battle against inflation.
The Federal Open Markets Committee (FOMC) is also due to release its quarterly Summary of Economic Projections, which will include the “dot plot,” or a glimpse into participating members’ expectations regarding the future path of interest rates.
Financial markets have currently baked in a 99% certainty that the Fed will hold the key rate at 5.25%-5.00% on Wednesday. Beyond that, the trajectory is less certain, with a 69% likelihood of the FOMC holding firm in November, according to CME’s FedWatch tool.
“The market would like to see the dot plot come in lower than last time,” said Sam Stovall, chief investment strategist of CFRA Research in New York. “It’s a case of bad news is good news; most people would say it would be good if the summary economic projections called for economic softening next year,” as they gauge the timing of a potential Fed pivot.
On the other hand, the possibility that the softening could mutate into recession remains a top concern.
“Investors are questioning the likelihood of a slowdown versus the hard landing, wondering if things could get worse than forecasters are currently projecting,” Stovall added.
The Dow Jones Industrial Average rose 6.06 points, or 0.02%, to 34,624.3, the S&P 500 gained 3.21 points, or 0.07%, to 4,453.53 and the Nasdaq Composite added 1.90 points, or 0.01%, to 13,710.24.
Energy shares, buoyed by rising crude prices gained the most of the 11 major sectors of the S&P 500, while consumer discretionary stocks suffered the biggest percentage drop, with Tesla Inc weighing heaviest.
VF Corp slumped 4.6% following Piper Sandler’s downgrade of the apparel company’s shares to “neutral” from “overweight.”
British chipmaker Arm Holdings slid 4.5% after Bernstein initiated coverage with an “underperform” rating just days after its stellar debut.
Paypal Holdings dipped 2.0% after MoffettNathanson cut its rating to “market perform” from “outperform.”
Declining issues outnumbered advancing ones on the NYSE by a 1.22-to-1 ratio; on Nasdaq, a 1.74-to-1 ratio favored decliners.
The S&P 500 posted 6 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 37 new highs and 247 new lows.
Volume on U.S. exchanges was 9.44 billion shares, compared with the 10.05 billion average for the full session over the last 20 trading days.
Reuters, Globe staff