TORONTO — Canada’s main stock index suffered its worst day in more than five months as investors appeared to put aside dovish Federal Reserve comments a day earlier to instead focus on the magnitude of interest rates to come.
The S&P/TSX composite index closed down 488.78 points, or 2.3 per cent, to 20,696.17. That’s the worst showing since Nov. 30. The Toronto market had been on track to have its weakest day in nearly two years in earlier trading.
U.S. markets sustained even larger declines with the Dow Jones industrial average losing 1,063.09 points at 32,997.97 for its worst day since 2020. The S&P 500 index was down 153.30 points at 4,146.87, while the Nasdaq composite was down 647.17 points or 5.0 per cent at 12,317.69.
Thursday’s sharp losses wiped out healthy gains a day before prompted by Fed chairman Jerome Powell’s comments that it wasn’t actively considering future rate hikes of 75 basis points after the central bank increased interest rates by 50 basis points.
“Yesterday’s move was pretty aggressive and I guess perhaps you could say he was a little less hawkish than maybe the market had priced, but I mean he’s still talking about 50 basis point increases for the next couple of meetings which is going to be challenging no doubt for stocks,” said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
He said it’s not uncommon for days with aggressive moves like on Wednesday to be unwound the following day.
Archibald doesn’t buy the argument that investors misinterpreted Powell’s comments.
“I just think that there tends to be a lot of volatility in tightening cycles, and I think that’s clearly what we’re seeing today,” he said in an interview.
However, he said Thursday’s large declines could suggest the selling is nearing an end.
“If you see one more big day like today in the coming week then it might not be a bad opportunity for those that are a little bit more tactical to step in,” he said.
“But clearly this is going to be obviously a much more challenging year 2022 versus what we’ve seen in the past couple of years.”
Nasdaq is down 21.3 per cent so far in 2022, the S&P 500 is off 13 per cent and the Dow down 9.2 per cent.
The TSX is just 2.5 per cent lower, thanks in large part to higher commodity prices, especially crude oil, that is up 44 per cent year-to-date and natural gas that has set a new multi-year high.
All 11 major sectors on the TSX were lower, led by a 6.5 per cent decrease in information technology. Shopify Inc. closed 14.3 per cent lower after announcing weak quarterly results. Six tech names were down by at least eight per cent on rising bond yields.
The U.S. 10-year Treasury reached a high of 3.1 per cent while the U.S. dollar continued its relentless move higher on expectations of rate increases.
“(The dollar is) strong again today and that is a real headwind for risk assets, so to the extent that both of those two things remain, it’s going to be difficult for stocks to do well,” Archibald added.
The Canadian dollar traded for 77.99 cents US compared with 78.06 cents US on Wednesday.
Health care was the second-weakest sector, losing 5.7 per cent as shares of cannabis producers Canopy Growth Corp. and Aurora Cannabis Inc. fell 9.0 and 8.8 per cent, respectively.
Materials was down 3.0 per cent despite higher bullion prices.
The June gold contract was up US$6.90 at US$1,875.70 an ounce and the July copper contract was down 4.7 cents at US$4.29 a pound.
The heavyweight financials sector lost 1.9 per cent while energy decreased 0.9 per cent even though crude oil prices reached a near six-week high.
Industrials dropped 2.6 per cent as SNC-Lavalin share lost 13.3 per cent after reporting that earnings sagged last quarter.
The June crude contract was up 45 cents at US$108.26 per barrel and the June natural gas contract was up 36.8cents at US$8.78 per mmBTU.
Headwater Exploration Inc. was down 4.5 per cent while Tamarack Valley Energy Ltd. lost 3.7 per cent on the day.
Archibald said crude prices rose after OPEC plus Russia agreed to increase output by 432,000 barrels a day as expected, along with reports that the European Union is getting close to further sanctions on Russia. President Joe Biden also said the U.S. needs to replenish its strategic petroleum reserves, which were drawn upon in an attempt to lower prices.
This report by The Canadian Press was first published May 5, 2022.
Companies in this story: (TSX:HWX, TSX:TVE, TSXACB, TSX:WEED, TSX:SNC, TSX:SHOP, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press