Bank earnings drag Toronto market to eight-week low

By Fergal Smith

(Reuters) – 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 analysts’ estimates and U.S. debt deal uncertainty weighed on investor sentiment.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 218.32 points, or 1.1%, at 19,927.69, its lowest close since March 29.

“The TSX is falling today in a broad-based rout, being dragged lower by the financial services sector after disappointing earnings from two major Canadian banks,” said Brandon Michael, senior investment analyst at ABC Funds.

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 as the economic outlook remains uncertain.

“The index is very overweight in financials, basic materials and energy and they have fallen out of favor considering concerns about global growth, uncertainty with interest rates and ongoing talks on the U.S. debt ceiling,” Michael said.

Wall Street’s main indexes also ended lower 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 financials sector accounts for 28% of the TSX’s weighting. It 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 showed the TSX would rally less than previously expected in 2023, as higher borrowing costs cooled the domestic economy and signs that China’s recovery was slowing reduced prospects for its resource-oriented sectors.