Wall Street closed sharply lower on Monday as investors started the holiday-shortened week in a risk-off mood, as rising bond yields weighed on market-leading growth stocks ahead of crucial inflation data.
All three major U.S. stock indexes ended deep in negative territory, with tech and tech-adjacent stocks pulling the Nasdaq down the most. The TSX, however, was relatively unscathed, losing 0.38%, even though energy stocks fell hard. Heavyweight tech stock Shopify rose after announcing a stock split and plans for governance changes.
“There’s been two kinds of sell-offs in the past month or two,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There’s the rising yields which primarily affects tech and other growth stocks, and then there’s the recession/economic slowdown sell-off that affects energy and various materials’ names.
“Today you’re seeing both.”
The benchmark 10-year U.S. Treasury yield hovered near a three-year high ahead of key inflation data expected on Tuesday. The yield on 10-year Treasury notes was up 6.5 basis points to 2.780% after climbing to 2.793%, its highest level since January 2019. The yield climbed for a seventh straight session.
Canadian government bonds tracked U.S. yields higher, with the five-year bond - closely followed because of its influence on fixed mortgage rates - rising to as high as 2.655%. That was the highest in more than a decade.
The U.S. Federal Reserve has vowed to aggressively tackle scorching inflation, and market participants largely expect a series of 50-basis-point interest rate hikes from the central bank in the coming months. The Bank of Canada is widely expected to announce its own 50 basis point hike this week.
“All eyes on an inflation number that’s probably going to be the highest in 40 years, which could prompt higher and more frequent (interest) rate hikes from the Fed,” Tuz added.
Economists expect Tuesday’s U.S. consumer price index (CPI) reading for March to see a year-over-year increase of 8.4%, according to Reuters estimates. February’s data showing a 7.9% increase was the largest annual reading in 40 years. On Wednesday, the producer price index (PPI) will be announced.
“[Markets] are definitely hoping to see inflation peak, but I don’t think they are expecting to see it this week - you probably need another month or so,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania. “In some of the data you are starting to see some rollover over some key variables, but there has just been some powerful influences that combine to keep pushing this thing higher.”
Ongoing geopolitical strife also helped prompt the flight to safety.
Ukraine said it expected Russia to launch a huge new offensive soon as the most serious conflict in Europe since the Balkan wars of the 1990s wore on, despite ongoing peace negotiations
The Dow Jones Industrial Average fell 413.04 points, or 1.19%, to 34,308.08, the S&P 500 lost 75.75 points, or 1.69%, to 4,412.53 and the Nasdaq Composite dropped 299.04 points, or 2.18%, to 13,411.96.
All 11 major sectors in the S&P 500 ended the session in the red, with energy shares suffering the biggest percentage losses.
First-quarter earnings season bursts through the starting gate later this week, with big U.S. banks leading the way.
Analysts have curbed their first-quarter optimism. On aggregate, annual S&P 500 earnings growth is estimated to be 6.1%, down from 7.5% at the beginning of the year.
Twitter Inc advanced 1.7% after its biggest shareholder, Tesla Inc Chairman Elon Musk rejected the social media company’s offer to join its board of directors.
As for Tesla, data showed sales of its electric vehicles plunged in China last month due to that country’s efforts to curb COVID-19 outbreaks, sending its shares down 4.8%.
Media and streaming firm Warner Bros Discovery Inc, formed from the $43 billion merger of Discovery Inc and assets of AT&T Inc, whipsawed in its first day of trading, ending up 1.4%.
Nvidia Corp slid 5.2% after Baird downgraded the chipmaker’s stock to “neutral” from “outperform,” citing order cancellations and potential demand slowdown.
Falling crude prices helped keep commercial air carriers aloft. The S&P 1500 Airline index rose 2.7%.
Chinese regulators approved its first gaming license since July of last year, boosting U.S.-listed shares of DouYu International Holdings, Huya, NetEase Inc and Bilibili by between 2.1% and 7.2%.
Declining issues outnumbered advancing ones on the NYSE by a 2.64-to-1 ratio; on Nasdaq, a 2.08-to-1 ratio favored decliners. The S&P 500 posted 34 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 37 new highs and 306 new lows Volume on U.S. exchanges was 11.03 billion shares, compared with the 12.71 billion average over the last 20 trading days.
Canada’s S&P/TSX Composite Index closed at 21,790.49, down 83.86 points. The tech sector was flat, but energy shares lost 2.5% and real estate stocks fell about 1%..
Oil prices fell about 4%, with Brent crude tumbling below US$100 a barrel on worries that the COVID-19 pandemic will cut demand in China and as International Energy Agency (IEA) countries plan to release record volumes of oil from strategic stocks.
U.S. West Texas Intermediate (WTI) closed at its lowest since Feb. 25, the day after Russian forces invaded Ukraine. Brent futures fell $4.30, or 4.2%, to settle at $98.48 a barrel, while WTI crude fell $3.97, or 4.0%, to settle at $94.29.
Fuel consumption in China, the world’s biggest oil importer, has stalled with COVID-19 lockdowns in Shanghai, analysts at the Eurasia Group consultancy said. Shanghai, China’s financial center, started easing lockdowns in some areas on Monday despite reporting a record of more than 25,000 new COVID-19 infections.
“Even when the restrictions in Shanghai are lifted, China’s zero-Covid policies will likely remain a drag on demand,” Eurasia Group said, noting Shanghai lockdowns likely reduced China’s overall oil consumption by up to 1.3 million barrels per day (bpd).
To help offset a shortfall in Russian crude after Moscow was hit with sanctions, IEA member nations, including the United States, will release 240 million barrels of oil over the next six months.
The release of Strategic Petroleum Reserve (SPR) volumes equals 1.3 million bpd over the next six months, enough to offset a shortfall of 1 million bpd of Russian oil supply, analysts at JP Morgan said.
Meanwhile, Shopify shares gained 2.9% in Toronto Monday, after announcing a 10-for-1 stock split. The company also proposed changes to its governance structure to preserve founder and CEO Tobi Lütke’s voting power, but provide sunset provisions that prevent him from transferring that power.
Reuters, Globe staff
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