North American stock markets solidly lower as investors mull U.S. Fed news

TORONTO – North American markets closed solidly in the red after the U.S. Federal Reserve’s decision Thursday to keep its key interest rate unchanged reignited concerns about lagging global economic growth.

The S&P/TSX composite index lost 140.26 points to close at 13,646.90, while the loonie rose 0.25 of a U.S. cent to 75.66 cents US.

The metals and mining sector of the TSX was the lead decliner, losing nearly five per cent, while energy stocks slipped more than two per cent. The telecom sector was the biggest gainer on the TSX, climbing 1.2 per cent.

In New York, the Dow Jones industrial average was down 290.16 points at 16,384.58, the broader S&P 500 index declined 32.17 points to 1,958.03, and the Nasdaq gave back 66.72 points to 4,827.23.

“I think we’re seeing a little bit of digestion of what happened yesterday playing into the markets today with respect to the Fed interest rate decision,” said Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd.

The U.S. central bank said Thursday it would keep its benchmark overnight interest rate at between zero and 0.25 per cent, citing weakness in the global economy, low inflation and unsettled stock markets.

The rate has remained unchanged since the global financial crisis of 2008.

The central bank said the overnight lending rate won’t budge until there is improvement in the labour market and inflation appears to be headed back to the Fed’s target of two per cent. In the Fed’s last reading, inflation was up just 1.2 per cent.

Watson said investors were looking for a rate hike, even though it would make the cost of borrowing pricier and could weigh on stocks.

“I think the market would have liked to have seen an interest rate increase in the sense it would have basically put a lot of weight behind the conviction that the U.S. economy was doing well enough to support an interest rate increase,” Watson said.

“Yes, equity markets have loved zero interest rates for years and years, and equity valuations have been up because of that, but I think we’re starting to get to a point where people are saying, ‘Okay, let’s get on with it.'”

Watson said investors are likely trying to evaluate how much the central bank was motivated by domestic concerns rather than global ones.

“There are some people questioning what the motives behind the Fed were — if it should be a concern about the overall U.S. economy,” he said.

“And if that’s the case, in a way Canadians need to be a little bit concerned because we follow their economy so closely, so maybe there’s a bit of sympathy pullback because people are just questioning the overall outlook for the U.S. in general.”

On the commodity markets, the December gold contract rose $20.80 to US$1,137.80 an ounce, the October crude contract was down $2.22 at US$44.68 a barrel and the October contract for natural gas was down 4.7 cents at US$2.605. The December copper contract slipped 6.6 cents to $2.386 a pound.

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