Stocks close out losing first week of year on rate hike fears

North American stock markets closed out a losing first week of the year with jobs reports reinforcing anticipation that central banks are nearing rate hike moves.

The Canadian economy added 55,000 jobs in December before COVID-19 cases began spiking at the end of the month with the unemployment rate dipping to 5.9 per cent, the lowest level since February 2020.

While the headline U.S. number didn’t meet expectations in increasing by 199,000, the unemployment rate dropped to 3.9 per cent.

And hourly wages rose by 0.6 per cent, which is an important component of inflation and one that the U.S. Federal Reserve has been increasingly focusing on over the past few months, said Steve Locke, chief investment officer of fixed income and multi-asset strategies at Mackenzie Investments.

“In terms of the balance of the outcome for the market today, not a lot changed in that perspective on what the Fed is looking at,” he said.

Markets softened after Wednesday’s release of minutes from the Fed’s December meeting suggesting it would become more aggressive about removing monetary stimulus and raising interest rates.

Locke said the market is pricing in more than three U.S. rate hikes in 2022 with the first coming perhaps in March.

The Bank of Canada’s next rate decision comes Jan. 26. The central bank is expected to start raising its key interest rate target later this year.

The S&P/TSX composite index gained 12.25 points to 21084.45 on Friday, but is down 138 points so far in 2022.

In New York, the Dow Jones industrial average lost 4.81 points at 36231.66, while the S&P 500 index was down 19.07 points at 4677.03.

The Nasdaq composite was down 144.97 points at 14935.90, the lowest close since Oct. 15 and down 4.5 per cent over the shortened trading week.

Bond yields continued to rise with the 10-year U.S. treasury reaching 1.771 per cent and the Canada 10-year government bond at 1.714 per cent.

The technology sector sustained the biggest losses in this environment.

“We’ve seen some of the growthier tech names get hit a little bit to start the year. And that maybe reflects a little bit of the hawkish bias and other sort of policy implications that we’ve been hearing,” Locke said.

Technology was weak again Friday, losing 1.4 per cent with shares of Shopify Inc. decreasing by another 2.8 per cent or 17 per cent over the first four days of 2022.

Energy, health care and financials were the best performers on the day.

Canopy Growth Corp. pushed health care higher while energy gained 0.9 per cent even though crude oil prices retreated on the day but increased 4.9 per cent for the week.

The February crude oil contract was down 56 cents at $78.90 US per barrel and the February natural gas contract was up 10.4 cents at $3.92 US per mmBTU.

Shares of Birchcliff Energy Ltd. increased 2.9 per cent while Canadian Natural Resources Ltd. were up 2.7 per cent.

The Canadian dollar traded for 78.95 cents US, the highest level in about a month and compared with 78.49 cents US on Thursday.

The heavyweight financials sector rose with banks Canadian Western, Laurentian and National increasing by two, 1.8 and 1.6 per cent, respectively.

Materials was slightly higher as the February gold contract was up $8.20 US at $1,797.40 US an ounce and the March copper contract was up 5.6 cents at $4.41 US a pound.

Experts anticipate market gains will be much more modest this year than in 2021.