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Canada’s main stock index edged lower on Monday for the first time in seven trading sessions as investors braced for a Federal Reserve interest rate hike this week, but the index still notched its largest monthly gain in nearly two years.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 45.05 points, or 0.2%, at 19,426.14, after six straight days of gains. On Friday, it posted its highest closing level in nearly six weeks.

U.S. stocks also fell, closing out a strong month on a soft note, as investor focus turned to the Fed’s policy decision on Wednesday.

The central bank is widely expected to raise interest rates by 75 basis points, but investors will look for any clues that rate hikes are set to decelerate in the future.

“I don’t expect volatility to go away, but, I believe we’re closer to the end of the rate hike cycles, both in Canada and in the U.S.,” said Kevin Headland, co-chief investment strategist at Manulife Investment Management.

“Although we’re going to get some choppiness, there could be more of an upward bias and it may continue a bit of the run we’re on right now.”

The Toronto stock exchange gained 5.3% in October, its biggest monthly advance since November 2020, as higher oil prices boosted energy shares.

Energy rose 1.6% on Monday, lifting its monthly gain to 21.9%, and healthcare ended 4.3% higher as shares of cannabis producer Canopy Growth Corp jumped 18.9%.

Most other sectors lost ground, including declines of 1.2% for both the technology and consumer staples sectors.

U.S. stocks lost ground on Monday, with the major indexes closing out a strong month of gains on a weaker foot, as investor focus turned to the Federal Reserve’s policy meeting this week.

The central bank is widely expected to raise interest rates by 75 basis points on Wednesday at the conclusion of its two-day policy meeting, but investors will look for any signals the Fed may be considering a deceleration in interest rate hikes in the future.

Hopes the Fed may pull back from its aggressive interest rate hike policy have lifted equities in recent weeks, with the S&P 500 notching a gain of nearly 9% over the past two weeks. The Dow booked its biggest monthly percentage gain since January 1976 and biggest October percentage gain since at least 1900.

Comments from Fed officials after the policy decision as well as labor market data later this week will help shape market expectations for future hikes starting at the December meeting.

“It is pretty much a foregone conclusion, it has been almost a 100% probability for at least three weeks now that it would be three-quarters of a point and very little chance that it is going to be more or less than that, but there is always apprehension on the part of everyone just waiting for that to be done,” said Randy Frederick, managing director, trading and derivatives, Charles Schwab in Austin, Texas.

“People are going to be digesting what is said on Wednesday about what happens on Dec. 14. My hope is that would be a quarter point. In reality, it is probably going to be half a point, but even that would be a very positive sign for the market.”

The Dow Jones Industrial Average fell 128.85 points, or 0.39%, to 32,732.95, the S&P 500 lost 29.08 points, or 0.75%, to 3,871.98 and the Nasdaq Composite dropped 114.31 points, or 1.03%, to 10,988.15.

For the month, the Dow jumped 13.95%, the S&P climbed 7.99% and the Nasdaq advanced 3.9%.

Apple Inc lost 1.54% after a Reuters report said production of its iPhones could slump by as much as 30% next month due to tightening COVID-19 curbs in China.

Megacap growth names such as Amazon.com and Google-owner Alphabet which have been under pressure in the rising rate environment, were also lower, down 0.94% and 1.85%, respectively.

Nearly all 11 S&P 500 sectors fell, with technology and communication services the worst performers with declines of more than 1%. Energy was the sole advancer ahead of remarks on oil companies by U.S. President Joe Biden later on Monday.

Energy companies such as Chevron and Exxon Mobil handily beaten profit estimates this quarter, benefiting from surging energy prices, in contrast to Big Tech firms that have largely disappointed investors.

“Dividend stocks, energy, stuff that is short duration, industrials ... that is what is working,” said Eric Diton, president and managing director at The Wealth Alliance in Boca Raton, Florida.

With around half of the companies in the S&P 500 having reported their quarterly results so far, third-quarter earnings growth estimates stands at 4%, according to Refintiv data, slightly lower than the 4.1% last week. Global Payments Inc slumped 8.82% after the company forecast full-year revenue below estimates.

Reuters

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