Canada’s main stock index slumped on Thursday to its lowest level in 14 months and its currency weakened as investors grew more worried that aggressive central bank interest rate hikes would trigger a recession, weighing on corporate earnings.
The Toronto Stock Exchange’s S&P/TSX composite index unofficially closed down 3.1%, or 607.50 points, at 19,004.06, its lowest level since April 2021.
The Canadian dollar was trading 0.3% lower at 1.2925 to the greenback, or 77.37 U.S. cents, after touching on Wednesday its weakest intraday level in more than one month at 1.2995.
U.S. stock indexes also tumbled on Thursday as the Swiss National Bank and the Bank of England lifted interest rates following the Federal Reserve’s 75-basis-point hike on Wednesday, with central banks aiming to slow domestic activity in the face of soaring price pressures.
“It is becoming increasingly necessary to see a decline in growth in order to stave off inflation,” said Joseph Abramson, co-chief investment officer at Northland Wealth Management.
“People have been talking about recession but it’s not in market expectation yet if you look at the forward earnings growth. So that’s the next shoe to drop.”
Broad-based declines on the TSX included a decline of 5.3% for the energy sector, extending its recent pullback, even as oil prices rose.
U.S. crude oil futures settled nearly 2% higher at $117.58 a barrel after the United States announced new sanctions on Iran.
Technology, which tends to be particularly sensitive to higher interest rates, fell 3.8% and heavily-weighted financials were 2.9% lower.
One major outlier among individual stocks was LifeWorks Inc . Its shares jumped 66.4% after Canadian wireless carrier Telus Corp. agreed to buy the human resources services company in a $2.9-billion deal.
Domestic data showed that Canada’s wholesale trade decreased by 0.5% in April from March, weighed by a drop in fertilizer imports from Russia.
Canadian government bond yields were mixed across the curve. The 10-year touched its highest since May 2010 at 3.664% before pulling back to 3.460%, unchanged on the day.
U.S. stock indexes closed sharply lower on Thursday in a broad sell-off as recession fears grew following moves by central banks around the globe to stamp out rising inflation after the Federal Reserve’s largest rate hike since 1994.
The benchmark S&P 500 suffered its sixth decline in seven sessions. Stocks had rallied on Wednesday as the Fed delivered an aggressive 75 basis point rate hike, as expected, to help the index snap its longest daily losing streak since early January.
But rate hikes on Thursday from the central banks of Switzerland and Britain reignited fears that attempts by central banks to curb inflation could lead to sharply slower growth worldwide or a recession.
“That is what people reassessing today – what is the probability of a potential recession and will corporate profits come in where analysts estimates are or will those get taken down,” said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management’s Ascent Private Wealth Group in Minneapolis.
“The Swiss came out and surprised everybody today and said we are less worried about the strength of our currency and more worried about inflation.”
According to preliminary data, the S&P 500 lost 121.87 points, or 3.22%, to end at 3,668.12 points, while the Nasdaq Composite lost 448.28 points, or 4.04%, to 10,650.88. The Dow Jones Industrial Average fell 727.65 points, or 2.37%, to 29,940.88.
Each of the 11 major S&P sectors were lower, although the defensive consumer staples was outperforming the broader market as names like WalMart, General Mills and Procter & Gamble were among the few S&P 500 components to advance in the session. Growth stocks were hit hard with the S&P growth index down about 4%.
Hopes the Fed could engineer a soft economic landing are fading and Wells Fargo analysts now see a greater than 50% chance of a recession. Other banks that have warned of rising recession risks include Deutsche Bank and Morgan Stanley.
The benchmark index has slumped about 23% year-to-date and recently confirmed a bear market began on Jan. 3, while the Dow Industrials was on the cusp of confirming its own bear market.
The CBOE volatility index, also known as Wall Street’s fear gauge, rose and was slightly below the one-month high of 35.05 touched earlier in the week. Many analysts are looking for the VIX to touch around 40 as one of the signals that selling pressure may be reaching its apex.
The Associated Press
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