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Canada’s main stock market fell to its lowest closing level in nearly two months on Wednesday as two major banks reported quarterly earnings that missed analyst estimates and U.S. debt deal uncertainty weighed on worldwide investor sentiment.

The S&P/TSX composite index ended down 218.32 points, or 1.1%, at 19,927.69, its lowest closing level since March 29.

Bank of Montreal and Bank of Nova Scotia shed 3.9% and 1.3%, respectively. The lenders reported smaller-than-expected quarterly profits as they set aside more rainy day funds amid economic uncertainty.

“The bank earnings reflect that business is slowing down in general,” said Allan Small, senior investment advisor at Allan Small Financial Group. “We’re seeing a slowdown in the Canadian economy and the U.S. economy, which obviously affects our banks.”

The heavily-weighted financials sector fell 1.9%, while industrials lost 1.4% and the materials group, which includes precious and base metals miners and fertilizer companies, was down 2.2%.

A Reuters poll suggested the TSX will rally less than previously expected in 2023, as higher borrowing costs cool the domestic economy and signs that China’s recovery was slowing reduces prospects for its resource-oriented sectors.

The median prediction of 22 portfolio managers and strategists in the May 10-23 poll was for the TSX to advance 4.2% to 21,000 by the end of the year, compared with 21,500 expected in the previous poll in February.

It was then expected to climb to 21,944 by end-2024, stopping short of the record closing high it set in March 2022 of 22,087.22.

Wall Street’s main indexes also ended lower Wednesday as talks between the White House and Republican representatives on raising the U.S. debt ceiling dragged on without a deal that could avoid default.

The lack of progress on raising the U.S. government’s US$31.4 trillion debt limit ahead of a June 1 deadline, with several rounds of inconclusive talks, has made investors edgier as the risk of a catastrophic default looms larger.

Democratic President Joe Biden and top congressional Republican Kevin McCarthy’s negotiators held what the White House called productive talks.

“Up until yesterday, investors have been very optimistic around the U.S. debt ceiling resolution,” said Angelo Kourkafas, senior investment strategist at Edward Jones. “But now as we get closer ... to the June 1st X-date, we are seeing some caution again.”

The Dow Jones Industrial Average fell 255.59 points, or 0.77%, to 32,799.92, the S&P 500 lost 30.34 points, or 0.73%, to 4,115.24 and the Nasdaq Composite dropped 76.08 points, or 0.61%, to 12,484.16.

Ten of the 11 S&P 500 sectors ended in negative territory, with real estate falling the most. Energy was the lone sector gainer.

The CBOE Volatility Index, known as Wall Street’s fear gauge, hovered around three-week highs.

Federal Reserve policy was also in focus. Stocks held their declines after the release of minutes from the Fed’s May 2-3 meeting, showing that Fed officials “generally agreed” last month that the need for further interest rate increases “had become less certain.”

Investors expect the central bank to pause its aggressive rate hiking campaign at its June 13-14 meeting.

Fed Governor Christopher Waller said he is concerned about the lack of progress on inflation, and while skipping an interest rate hike at the central bank’s meeting next month may be possible, an end to the hiking campaign is not likely.

“The economy is still doing OK, and there really is not, from the Fed’s perspective, a reason to back away from a tighter monetary policy,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management.

In company news, Citigroup Inc shares fell 3.1% as the bank scrapped a US$7 billion sale of its Mexican consumer unit Banamex and will list it instead.

Agilent Technologies Inc shares shed about 6% after the company cut its annual sales and profit forecasts.

Shares of TurboTax-owner Intuit Inc dropped 7.5% after a disappointing profit forecast.

Declining issues outnumbered advancing ones on the NYSE by a 3.71-to-1 ratio; on Nasdaq, a 2.34-to-1 ratio favored decliners. The S&P 500 posted no new 52-week highs and 14 new lows; the Nasdaq Composite recorded 38 new highs and 110 new lows. About 9.7 billion shares changed hands in U.S. exchanges, compared with the 10.5 billion daily average over the last 20 sessions.

Reuters, Globe staff