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U.S. and Canadian stock markets closed lower on Wednesday, unable to sustain an afternoon rally, after data showing strong U.S. labour demand again suggested the Federal Reserve will keep interest rates higher for longer.

Fed officials have insisted on aggressive rate tightening to battle inflation, a message the market has feared would lead to a hard landing and likely recession.

However, investors also sought bargains in a market that appears oversold. The forward price-to-earnings ratio for the S&P 500 is at 15.9, close to its historic mean, down from around 22 before the market’s big slide this year.

“By battling back, to me that is a favourable indicator that this rally could have legs,” said Sam Stovall, chief investment strategist at CFRA Research in New York.

“It too confirms that investors believe, traders believe, that there’s still more to go in this rally,” he said.

U.S. private employers stepped up hiring in September, the ADP National Employment report on Wednesday showed, suggesting rising rates and tighter financial conditions have yet to curb labor demand as the Fed battles high inflation.

The Institute for Supply Management’s services industry employment gauge shot up in another sign labour remains strong as the overall industry slowed modestly in September.

The Fed is expected to deliver a fourth straight 75-basis-point rate hike when policymakers meet Nov. 1-2, the pricing of fed fund futures shows, according to CME’s FedWatch tool.

San Francisco Fed President Mary Daly told Bloomberg TV in an interview that inflation is problematic and that the U.S. central bank would stay the course.

“The path is clear: we are going to raise rates to restrictive territory, then hold them there for a while,” she said. “We are committed to bringing inflation down, staying course until we are well and truly done.”

The benchmark S&P 500 index rose 5.7% Monday and Tuesday as Treasury yields slid sharply on softer U.S. economic data, the UK’s turnaround on proposed tax cuts that had roiled markets and Australia’s smaller-than-expected rate hike.

Treasury yields in both Canada and the U.S. shot up again on Wednesday after the softer economic data failed to bolster budding hopes the Fed might pivot to a less hawkish policy stance. The yield on benchmark U.S. 10-year Treasuries was up 14 basis points to 3.749%.

Eight of the 11 major S&P 500 sectors fell, led by a 2.25% decline in utilities and 1.9% drop in real estate.

The energy sector led the market higher, up 2.06%, after the Organization of the Petroleum Exporting Countries and allies agreed to cut oil production the deepest since the COVID-19 pandemic began, curbing supply in an already tight market. U.S. crude prices settled 1.4% higher at $87.76 a barrel.

The Dow Jones Industrial Average fell 42.45 points, or 0.14%, to 30,273.87, the S&P 500 lost 7.65 points, or 0.20%, to 3,783.28 and the Nasdaq Composite dropped 27.77 points, or 0.25%, to 11,148.64.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 135.90 points, or 0.7%, at 19,235.09, after climbing 5% over the course of Monday and Tuesday.

The Canadian and U.S. employment reports for September are due for release on Friday.

“There is a lot of pessimism in this market. The bar for good things to happen I think is very, very low,” said Mike Archibald, a portfolio manager at AGF Investments. “If we can get some decent news either on the earnings front or on the data front I think there is a really good chance that we continue to rally here.”

The Toronto market’s energy sector climbed 1.9%. That helped offset some broader losses for the index, including a 1.9% decline for the utilities group.

It was dragged down by a 5.5% slide in Ballard Power after Citigroup cut the price target on its U.S.-listed shares.

Technology lost 1.4% in Toronto and heavily-weighted financials ended 0.8% lower.

In the U.S., Twitter Inc lost momentum in line with its peers, a day after surging 22% on billionaire Elon Musk’s decision to proceed with his original $44-billion bid to take the social media company private.

Twitter fell 1.35% and Tesla Inc, the electric-car maker headed by Musk, also slid 3.46.

Volume on U.S. exchanges was 10.43 billion shares, compared with the 11.64 billion average for the full session over the past 20 trading days.

Declining issues outnumbered advancers on the NYSE by a 2.08-to-1 ratio; on Nasdaq, a 1.69-to-1 ratio favored decliners. The S&P 500 posted two new 52-week highs and nine new lows; the Nasdaq Composite recorded 49 new highs and 128 new lows.

Reuters, Globe staff

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