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U.S. and Canadian stocks ended lower on Monday as investors shifted gears after considering the possibility that the U.S. Federal Reserve may take longer to start cutting interest rates. Bond yields rose sharply for a second straight trading day.

Traders are keeping a close eye on speeches by Fed officials this week, including Chair Jerome Powell on Tuesday, for any change in the central bank’s rhetoric after data last week showed services activity was strong in January as well as strong job growth.

“We got that blowout jobs report, and people have had to reassess what the outlook for the Fed and the economy is. [Tuesday] will be interesting to see if Powell continues his transformation from hawk to dove,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

U.S. Treasury Secretary Janet Yellen said on Monday the United States may avoid a recession as inflation is coming down while the labour market remains strong.

After taking a hit in 2022, U.S. equities have recovered strongly in 2023, led by megacap growth stocks amid short-lived hopes that the Fed will temper its aggressive rate hikes, which in turn could alleviate some pressure on equity valuations.

Money market participants now see the benchmark rate peaking at 5.1% by July, in line with what most policymakers have backed repeatedly.

The yield on the 10-year U.S. Treasury note Monday extended gains to a four-week high, climbing to 3.655%. Canadian bond yields also rose sharply. The Canada five-year government bond yield, which is influential on fixed mortgage rates, rose about 15 basis points to 3.20%, the highest in almost a month.

With the rise in yields, money markets are also backing away from pricing in rate cuts by the Bank of Canada this fall. Interest rate swaps, which are based on market expectations about future rate decisions, are now pricing in a low likelihood of any cuts before December of this year. Earlier this month, money markets were pricing in an easing in monetary policy as early as September.

In fresh data Monday, Canadian economic activity expanded in January at the sharpest pace in eight months as employment climbed and supplier deliveries speeded up, Ivey Purchasing Managers Index data showed.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 129.42 points, or 0.6%, at 20,628.92, its lowest closing level since Jan. 30.

The technology sector fell 0.9% and the materials group, which includes precious and base metals miners and fertilizer companies, lost 1.2%.

It was pressured by a 4.1% decline in the shares of Newmont Corporation after the gold miner made a US$16.9 billion offer for Australian peer Newcrest Mining Ltd.

Osisko Mining Inc was also a drag. Its shares fell 10.5% after the company announced a “bought deal” private placement of units.

First Quantum Minerals Ltd shares were down 8.1% after the miner said its subsidiary, Minera Panama, has suspended concentrate loading operations at the Cobre Panama port.

The Dow Jones Industrial Average ended down 35.85 points, or 0.11%, at 33,890.16, the S&P 500 lost 25.44 points, or 0.62%, to 4,111.04 and the Nasdaq Composite dropped 119.51 points, or 1%, to 11,887.45.

Tyson Foods Inc fell 4.6% after missing analysts’ estimates for quarterly revenue and profit.

Contrary to the overall trend, Tesla Inc rose 2.5% after a U.S. jury on Friday found Chief Executive Elon Musk and his company were not liable for misleading investors when Musk tweeted in 2018 that he had “funding secured” to take the electric-vehicle maker private.

Meme stocks, such as AMC Entertainment and Gamestop , also gained steam late in the session, ending 11.8% and 7.2% higher, respectively.

U.S.-listed Chinese stocks such as Pinduoduo Inc fell 1.9% on geopolitical concerns after a U.S. military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina on Saturday.

Most of the 11 major S&P 500 sector indexes were in the red, except for utilities and consumer staples.

Declining issues outnumbered advancing ones on the NYSE by a 3.37-to-1 ratio; on Nasdaq, a 1.98-to-1 ratio favored decliners. The S&P 500 posted 5 new 52-week highs and 1 new low; the Nasdaq Composite recorded 79 new highs and 19 new lows.

Reuters, Globe staff

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