U.S. stocks slumped on Thursday as investors dumped shares of technology companies as well as businesses in cyclical sectors on fears that the escalating trade war between United States and China would stymie global economic growth.
Further fueling trade fears among investors, Beijing said that Washington needs to correct its “wrong actions” for trade talks to continue after the United States blacklisted Huawei Technology Co Ltd last week.
Stocks in Toronto followed a similar path, with declines in energy producers and Royal Bank of Canada weighing on the S&P/TSX Composite Index. It closed down 162.74 points, or 1 per cent, to 16,164.61 - it’s worst day since Christmas Eve.
Higher interest rates in Canada and the United States helped improve net interest margins (NIM) at Royal Bank and Toronto Dominion Bank, which both reported earnings Thursday, as they earned more from loans than they paid out on deposits.
However, RBC gave a cautious outlook for NIM. On a post-earnings conference call, bank executives said NIM is expected to be relatively flat over the next several quarters, given the outlook for interest rates.
Other big TSX decliners Thursday were Suncor, down 3.5 per cent, and Canadian Natural Resources, down 3.3 per cent.
The Canadian dollar traded at an average of 74.19 cents US compared with an average of 74.57 cents US on Wednesday.
On the brighter side, the June gold contract was up US$11.20 at US$1,285.40 an ounce and the July copper contract was up 0.25 of a cent at US$2.68 a pound.
Among the S&P 500’s major sectors, only utilities and real estate, both considered defensive areas, registered gains as investors moved to safe-haven assets such as Treasuries.
Shares of S&P 500 technology and industrial companies, two sectors that have been bellwethers of trade sentiment, fell more than 2%. Shares of S&P 500 companies in the cyclical financial and energy sectors also tumbled, with the 3.8% drop in energy shares leading losses among S&P 500 sectors.
A 5% plunge in oil prices in response to a dampened outlook for demand impeded energy shares, while a drop in 10-year U.S. Treasury yields, which hit their lowest level since December 2017, held back financial shares.
“We’re going to see a drift lower until there’s a resolution of what’s happening with China,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia. “If you’re trading, it’s not a bad idea to put yourself on the sidelines and sit it out.”
Adding to the downbeat mood in markets, data from IHS Markit showed U.S. manufacturing faltered in May, with new orders falling for the first time since August 2009.
“Investors realize that coming to a deal is going to be more challenging and that is really harmful to the economic environment,” said Luke Tilley, chief economist at Wilmington Trust in Wilmington, Delaware, who described the day’s trading as “a classic risk-off movement.”
The Dow Jones Industrial Average fell 418.29 points, or 1.62%, to 25,358.32, the S&P 500 lost 47.77 points, or 1.67%, to 2,808.5 and the Nasdaq Composite dropped 157.90 points, or 2.04%, to 7,592.94.
Stocks have succumbed to selling pressure in May after Washington and Beijing engaged in tit-for-tat tariffs and other retaliatory measures, with the S&P 500 on track to post its first monthly decline since the December sell-off.
Shares of NetApp Inc tumbled 9.0%, the second-biggest percentage drop on the S&P 500, after the data storage equipment maker forecast current-quarter profit and revenue below Wall Street estimates.
L Brands Inc shares jumped 11.8% after the owner of Victoria’s Secret and Bath & Body Works reported better-than-expected quarterly earnings.