Markets sink after hawkish turn
TORONTO • Canada’s main stock index fell to a seven-week low on Friday as investors weighed the prospect of aggressive interest rate hikes by central banks to cool inflation, with broadbased declines led by the financial, energy and materials sectors.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 464.03 points, or 2.1 per cent, at 21,186.38, its biggest decline since last November and its lowest closing level since March 1. For the week, the index was down 3.1 per cent.
Wall Street also slumped, with the decline coming one day after U.S. Federal Reserve chair Jerome Powell’s hawkish pivot, backing a quicker move to combat inflation. It was the thirdstraight week of losses for both the S&P 500 and the Nasdaq, while the Dow Jones posted its fourth weekly decline in a row.
The Bank of Canada has also turned more hawkish. It could consider a larger rate increase than the half-point move it made last week, Go. Tiff Macklem said Thursday.
Domestic economic data showed the largest monthly gain in producer prices since the series began in January 1956.
All 10 of the TSX’S major sectors lost ground, with the heavily-weighted financial services sector falling 2.6 per cent and technology ending 2.5-per-cent lower. Energy was down 1.9 per cent as U.S. crude futures settled 1.7 -per-ent lower at US$102.07 a barrel.
The materials group, which includes precious and base metals miners and fertilizer companies, lost 2.6 per cent. It included a decline of 9.1 per cent for copper producer First Quantum Minerals Ltd as copper prices fell.
The stakes will be high next week as investors brace for a flood of U.S. quarterly reports, including those from megacap growth titans. Investors are hoping they’ll confirm a solid profit outlook for Corporate America and bolster the case for stocks after a rocky start to the year.
Nearly 180 companies in the S&P 500, worth roughly half of the benchmark index’s market value, are due to report results next week. They include the four biggest U.S. companies by market capitalization: Apple, Microsoft, Amazon and Google parent Alphabet.
With monetary policy weighing on stocks, bullish investors are counting on a solid corporate outlook to support markets, ratcheting up pressure on companies to report solid bottom-line results and forecasts. S&P 500 companies are estimated to increase earnings by nine per cent this year, according to Refinitiv IBES.
“It’s probably the strongest argument you can make for owning stocks at this point, that corporate profits are still very robust,” said Charlie Ryan, portfolio manager at Evercore Wealth Management. “Any degradation in corporate profit growth and the cadence of that would spook the market.”