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The S&P 500 ended nominally lower on Wednesday as a string of corporate earnings ran the gamut from downbeat to dismal, reviving worries over the economic impact of the U.S. Federal Reserve’s restrictive policy. The TSX also closed with a modest loss, as market players took in what could be the final Bank of Canada rate hike for this monetary tightening cycle and began aggressively pricing in the possibility of interest rate cuts before year end.

The S&P/TSX Composite index and all three major U.S. stock indexes pared their losses throughout the afternoon to close well off session lows, with the blue-chip Dow eking out a small gain in the final minutes.

The tech-laden Nasdaq was weighed down after Microsoft Corp, the first major technology firm to post quarterly results, offered dour guidance and raised red flags with respect to its megacap peers which have yet to report.

“We’ve had up and down days, that indicates an ongoing tug-of-war,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “The dour guidance is good news from the standpoint of what the Fed is doing is working.”

“That outcome has become the catalyst for the market one way or the other,” Carlson added. “Earnings matter but what’s really got the market’s focus is the Fed interest rate/inflation story.”

Fourth-quarter earnings season has shifted into overdrive, with 95 of the companies in the S&P 500 having reported. Of those, 67% have beat consensus estimates, well below the 76% average beat rate over the past four quarters, according to Refintiv.

Analysts now see aggregate S&P 500 earnings dropping 3.0% year-on-year, nearly double the 1.6% drop seen on Jan. 1, per Refinitiv.

The Dow Jones Industrial Average rose 9.88 points, or 0.03%, to 33,743.84, the S&P 500 lost 0.73 points, or 0.02%, to 4,016.22 and the Nasdaq Composite dropped 20.92 points, or 0.18%, to 11,313.36.

Five of the 11 major sectors of the S&P 500 ended lower, with utilities suffering the largest percentage loss.

Abbott Laboratories dropped 1.4%, as weaker-than-expected medical device sales weighed on the stock.

Among gainers, News Corp jumped 5.7% after Rupert Murdoch withdrew a proposal to reunite News Corp and Fox Corp. AT&T Inc also delivered disappointing guidance but its renewed focus on its telecoms business helped boost subscriber numbers, sending its shares up 6.6%.

General Dynamics Corp beat quarterly expectations, but a weak 2023 forecast helped send the defense contractor’s shares sliding 3.6%.

Shares of Tesla Inc whipsawed in extended trading after the electric auto maker beat fourth quarter revenue estimates.

IBM advanced after hours in the wake of posting its highest annual revenue growth in a decade.

Shares of Levi Strauss & Co jumped more than 6% in extended trade after the jeans maker provided upbeat 2023 guidance.

Finally, in a post-script to Tuesday’s technical glitch which halted the opening auctions for a spate of stocks and prompted a review by the U.S. Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE) said a manual error resulted in the snafu which caused widespread confusion at the opening bell.

The S&P/TSX Composite Index closed down 29.95 points, or 0.15%, at 20,599.60. Industrials fell 2% as Canadian National Railway lost 4.6% after late Tuesday reporting disappointing quarterly results. Both materials and technology sectors were gainers.

The Bank of Canada hiked its benchmark interest rate Wednesday by a quarter of a percentage point to 4.5 per cent, its eighth consecutive rate increase. It also indicated it expects to hold off further rate hikes.

The Canadian dollar and domestic bond yields fell modestly on the news, as overall the bank’s actions were seen as a bit more dovish than expected.

The loonie was down 0.1% at 1.3385 to the greenback by late afternoon, or 74.71 U.S. cents. The 2-year bond yield was down 7.8 basis points at 3.577%, while the gap compared to the equivalent U.S. rate narrowed by 5.8 basis points to about 56 basis points in favour of the U.S. bond.

Interest rate probabilities show about 89% odds of the bank making no change to its overnight rate at its next announcement on March 8, according to Refinitiv Eikon data.

But following the bank’s 10 am announcement and Monetary Policy Report, credit markets started making their most aggressive bets yet that the central bank’s key lending rate will start coming down later this year as the bank shifts from inflation fighting to providing support to a slowing economy. They are now fully pricing in a 25 basis point cut by the Oct. 25 Bank of Canada meeting. And they are positioned for an overnight rate of 4.07% by the Dec. 6 meeting. That implies money markets are getting close to pricing in a 50 basis point cut in the overnight rate by the end of this year.

In domestic economic news, a preliminary estimate showed Canadian factory sales falling 1.8% in December from November, largely driven by decreases in the petroleum and coal product, wood product and primary metal industries.

The price of oil steadied after a smaller than expected build in U.S. crude inventories. U.S. crude oil futures settled 2 cents higher at US$80.15 a barrel.

Reuters, Globe staff

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