Stocks lower, Fed says QE to conclude at end of month, rates to remain low

Photo: The Canadian Press. All rights reserved.

Financial numbers flow on the digital ticker tape at the TMX Group in Toronto's financial district on May 9, 2014. THE CANADIAN PRESS/Darren Calabrese

TORONTO - The Toronto stock market closed lower Wednesday as the U.S. Federal Reserve did just what many traders expected — announced the end of its quantitative easing program, kept its key rate unchanged at close to zero and said it was in no hurry to hike rates.

The S&P/TSX composite index fell 96.68 points to 14,527.57 with particular pressure coming from gold stocks as the impending end of QE send bullion prices sharply lower.

The Canadian dollar lost ground as the greenback appreciated in the wake of the Fed announcement, down 0.16 of a cent to 89.36 cents US.

U.S. indexes were also lower as the Dow Jones industrials dropped 31.44 points to 16,974.31, the Nasdaq declined 15.06 points to 4,549.23 and the S&P 500 index shed 2.75 points to 1,982.3.

Some traders have viewed the completion of the QE stimulus with some trepidation since the program of massive bond purchases has kept long-term rates low and helped encourage the strong rally on stock markets over the past few years.

But economic conditions have improved dramatically since the Fed first launched its initial QE program in the wake of the 2008 financial collapse and the U.S. central bank noted Wednesday that softness in the labour market is gradually diminishing.

"There have been clear signs the U.S. economy is on a stronger footing today than it was, say, a year ago, and so accordingly the need for stimulus from the Fed is less today than it once was," observed Colum McKinley, Canadian equities manager at CIBC Asset Management.

Markets had looked for reassurance that the Federal Reserve would keep short-term rates low after QE ends and got it as the Fed kept words "considerable period" in its announcement.

All TSX sectors were lower save for small gains in consumer discretionary and utilities stocks.

The gold sector took the brunt of the damage, down over four per cent as December gold closed down $4.50 to US$1,224.90 an ounce. The pressure continued after the close with gold falling $18.40 to US$1,211.

Barrick Gold (TSX:ABX), which posts earnings after the close, faded 76 cents to $14.34.

The metals and mining sector was down 0.43 per cent as December copper closed higher for a fifth day, up a cent to at US$3.10 a pound.

Teck Resources (TSX:TCK.B) reported adjusted earnings of 28 cents a share, three cents higher than estimates, helped in part by improved results from its zinc operations. Revenue was down nearly 11 per cent to $2.25 billion with results impacted by lower prices for its steelmaking coal and its shares were up 32 cents to $18.16.

"As shareholders in Teck, we are quite encouraged by what we saw in the results," McKinley said.

"You are seeing continued improvements on the cost side . . . and (they) increased their outlook on zinc."

The energy sector fell 0.25 per cent while December crude ran up 78 cents to US$82.20 a barrel. Suncor Energy (TSX:SU) was 15 cents lower at C$38.85 ahead of earnings coming out Wednesday night.

In the U.S., Facebook shares fell six per cent after finance chief David Wehner said that he expects the social network company to incur higher expenses than normal in the quarters to come in the wake of big investments in both engineering talent and acquisitions. Facebook had reported adjusted earnings and revenue that both beat expectations.