Canada’s main stock index tumbled 1.5% on Thursday as economically sensitive commodity prices lost further ground, including a nearly 5% drop in the price of copper.
The red metal is often seen as an indicator of where global growth may be heading, and its swift 20% fall from a record high in March is sending strong signals that global markets are deeply concerned a recession in major economies is around the corner.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 286.92 points at 18,717.12, its lowest closing level in 15 months.
“It’s this tug of war that we are seeing in terms of the potential for an economic slowdown versus inflationary pressures,” said Ben Jang, a portfolio manager at Nicola Wealth.
The potential for weaker oil demand weighed on energy shares, while hopes that the central banks might not need to raise interest rates as aggressively as previously feared bolstered technology.
The Federal Reserve is not trying to engineer a recession to stop inflation but is fully committed to bringing prices under control even if doing so risks an economic downturn, U.S. central bank chief Jerome Powell said.
The energy sector tumbled 6.9% as investors weighed the potential impact of slower economic growth on fuel demand. U.S. crude oil futures settled 1.8% lower at $104.27 a barrel.
The materials group, which includes precious and base metals miners and fertilizer companies, lost 5%, pressured by declines for gold and copper prices.
Heavily-weighted financials were down 1.7%. In contrast, technology climbed 4.1%, along with gains for U.S. technology shares as the U.S. 10-year yield touched its lowest in nearly two weeks at 3.005%.
Higher interest rates reduce the value to investors of the future cash flows that technology and other high growth sectors are expected to produce.
Wall Street had a much brighter day than Bay Street. Its major indexes posted solid gains fueled by strong performance from both defensive and tech shares that outweighed declines for economically sensitive groups as worries persisted about a potential recession.
The benchmark S&P 500 swung between positive and negative during the session, but stocks picked up steam heading into the market’s close.
Trading has remained volatile in the wake of the S&P 500 last week logging its biggest weekly percentage drop since March 2020. Investors are weighing how far stocks could fall after the index earlier this month fell over 20% from its January all-time high, confirming the common definition of a bear market.
“There is a tremendous amount of uncertainty about the outlook and so the market is confused,” said Walter Todd, chief investment officer at Greenwood Capital in South Carolina.
The Dow Jones Industrial Average rose 194.23 points, or 0.64%, to 30,677.36, the S&P 500 gained 35.84 points, or 0.95%, to 3,795.73 and the Nasdaq Composite added 179.11 points, or 1.62%, to 11,232.19.
In his second day of testifying before Congress, U.S. central bank chief Jerome Powell said the Fed’s commitment to reining in 40-year-high inflation is “unconditional” but also comes with the risk of higher unemployment.
U.S. business activity slowed considerably in June as high inflation and declining consumer confidence dampened demand across the board, a survey on Thursday showed.
“The Fed wants to see things start to slow and the data is starting to reflect that,” said James Ragan, director of wealth management research at D.A. Davidson.
Citigroup analysts said Thursday they are forecasting a near 50% probability of a global recession.
“Economic growth is slowing. Is it going to slow enough to go into a recession, that’s the big question,” Ragan said.
Defensive groups considered safer bets in rocky economic times were the top-performing S&P 500 sectors. Among them, utilities gained 2.4%, healthcare rose 2.2% and real estate added 2%.
The heavyweight tech sector rose 1.4%, with Microsoft gaining 2.3% and Apple up 2.2%.
The S&P energy sector slumped 3.8%, continuing its recent pullback after soundly outperforming the market for most of 2022. Declines in Exxon Mobil and Chevron were the biggest individual drags on the S&P 500, with Exxon dropping 3% and Chevron falling 3.7%.
Other economically sensitive sectors also fell. Materials lost 1.4%, while industrials and financials dipped about 0.5% each.
Advancing issues outnumbered declining ones on the NYSE by a 1.41-to-1 ratio; on Nasdaq, a 1.67-to-1 ratio favored advancers. The S&P 500 posted one new 52-week high and 40 new lows; the Nasdaq Composite recorded 32 new highs and 194 new lows. About 12.4 billion shares changed hands in U.S. exchanges, compared with the 12.5 billion daily average over the last 20 sessions.
Reuters, Globe staff