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The S&P 500 and TSX closed lower on Tuesday as rising commodity prices and labor shortages prompted fears that despite reassurances from the U.S. Federal Reserve, near-term price spikes could morph into longer-term inflation.

While all three indexes pared their losses from session lows, the sell-off was fairly evenly dispersed across the sectors.

“Today feels like a catch-up in that tech has been weak so far this month and it’s finally spilled over into other areas of the market and we’re seeing broader weakness,” said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina.

Economic data released on Tuesday from the Labor Department showed job openings at U.S. companies jumped to a record high in March, further evidence of the labor shortage hinted by Friday’s disappointing employment report.

The report suggests labour supply is not keeping up with surging demand as employers scramble to find qualified workers.

Burrito chain Chipotle Mexican Grill announced it would hike the average hourly wage of its workers to $15, a further sign that the worker shortage in the face of a demand revival could add fuel to the inflation surge.

That worker shortage, along with a supply drought in the face of booming demand could contribute to what is seen as inevitable prices spikes, which the U.S. Federal Reserve has repeatedly said are unlikely to translate into long-term inflation.

“The inflation concerns continue,” Detrick said. “The supply chain issues coupled with record stimulus coupled with apparently a tighter labor market have all contributed to fears that inflation could trend higher over the summer months.”

“I don’t think (the market) believes the Fed when it says they won’t raise rates until after 2023,” Detrick added. “That could be where the market and the Fed do not see eye to eye.”

Market participants will scrutinize the Labor Department’s CPI report, due early Wednesday, for further signs of potential inflationary pressures.

The S&P/TSX Composite Index closed down 87.84 points, or 0.45%, at 19,274.04. Most sectors were lower, with both energy and real estate losing more than 1%. Materials was a bright spot, rising 0.69%.

The Dow Jones Industrial Average fell 473.66 points, or 1.36%, to 34,269.16, the S&P 500 lost 36.33 points, or 0.87%, to 4,152.1 and the Nasdaq Composite dropped 12.43 points, or 0.09%, to 13,389.43.

Of the 11 major sectors in the S&P 500, only materials ended the session green. Energy suffered the largest percentage loss, closing down 2.6%

The CBOE Volatility index, a measure of investor anxiety, closed at 21.85, its highest level since March 11.

Boeing Co lost 1.7% after the planemaker announced deliveries of its 737 MAX fell to just four planes in April due to an electrical problem.

Tesla Inc continued its slide, dropping 1.9% following the electric automaker’s decision to expand its Shanghai plant owing to heightened U.S.-China tensions.

Declining issues outnumbered advancing ones on the NYSE by a 2.85-to-1 ratio; on Nasdaq, a 1.62-to-1 ratio favored decliners. The S&P 500 posted seven new 52-week highs and one new low; the Nasdaq Composite recorded 28 new highs and 224 new lows. Volume on U.S. exchanges was 11.78 billion shares, compared with the 10.33 billion average over the last 20 trading days.

Oil prices settled higher on Tuesday, as lingering fears of gasoline shortages due to an outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.

Brent crude futures rose 23 cents, or 0.3%, to settle at $68.55 a barrel while U.S. West Texas Intermediate (WTI) crude futures rose 36 cents, or 0.6%, to end the session at $65.28.

Benchmark gasoline futures prices ended the session 0.3% higher at $2.1399 a gallon.

On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.

“While the short-term risk is being played down, the market is still visibly shaken by the event, given the nature of the attack and the scale of the infrastructure,” said Rystad Energy’s oil markets analyst Louise Dickson.

“The market is now concerned about the likelihood of such an event being repeated and about the severity of future attacks.”

Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.

Read more: Stocks that saw action on Tuesday - and why

Reuters, Globe staff

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