Canada’s main stock index on Tuesday posted its eighth straight day of gains as energy shares climbed and domestic data added to evidence that inflation has peaked. The winning streak was the index’s longest since October 2021.
On Wall Street, the Dow fell more than 1% on Tuesday as weak earnings from Goldman Sachs dragged the index lower, but a jump in Tesla shares helped the Nasdaq stay positive as the corporate earnings season took centre stage.
The rise in Tesla Inc after the electric-vehicle maker’s January retail sales surged in China helped growth-oriented shares eke out gains, but small caps and value stocks fell as fears of a recession unsettled investors.
Earnings from Goldman Sachs and Morgan Stanley closed out what was a mixed bag for big banks, many of which have stashed rainy-day funds to gird against a potential downturn.
Analysts are anxious to hear from corporate America about the demand environment amid signs of an upward trend in the economy, said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
“Earnings estimates have declined so much at the start of earnings season that there’s potential for companies to hurdle past a really low bar,” Saglimbene said.
“If the demand environment is still relatively healthy, that would exceed expectations because I think analysts took down earnings so much.”
Goldman Sachs Group Inc slumped 6.44% after the bank reported a bigger-than-expected drop in quarterly profit and was the biggest drag on the price-weighted index. A stock’s share value is proportional to its contribution to the index, in contrast to the market capitalization-weighted S&P 500.
Also weighing on the blue-chip Dow index was insurer Travelers Cos Inc, which fell 4.60% after forecasting fourth-quarter earnings below estimates.
But a 7.43% jump in Tesla helped keep the Nasdaq afloat after recent price cuts the company made on its top-selling models, data from China Merchants Bank International showed.
Tesla was the largest percentage gainer on both the S&P 500 and the Nasdaq 100.
Morgan Stanley rose 5.91% after it beat analysts’ estimates for fourth-quarter profit as its trading business got a boost from market volatility.
Analysts expect year-over-year earnings from S&P 500 companies to decline 2.4% for the quarter, according to Refinitiv data, compared with a 1.6% decline at the start of the year.
Data showed New York state manufacturing contracted sharply in January as orders collapsed and employment growth stalled, pointing to continued weakness in national factory activity, fueling recession concerns.
Equity markets have posted a strong start to the year after a dismal 2022, on hopes easing inflation and a slowdown most notably in the labour market would allow the Federal Reserve to pare the size of interest rate hikes it is using to combat high prices.
Money market participants are currently expecting a 25-basis point interest rate hike from the U.S. central bank on Feb. 1 and see rates peaking at 4.9% in June and then falling. The Fed projects rates will be more than 5% into next year.
The Dow Jones Industrial Average fell 391.76 points, or 1.14%, to 33,910.85 and the S&P 500 lost 8.12 points, or 0.20%, to 3,990.97. The Nasdaq Composite added 15.96 points, or 0.14%, to 11,095.11.
The Dow snapped a four-session win streak, while the Nasdaq notched its seventh straight gain, its longest streak since November 2021.
U.S.-listed shares of Chinese companies declined, with JD.Com Inc down 5.72% and Baidu Inc off 6.02% after China’s economic growth in 2022 slumped to one of its worst levels in nearly half a century.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 67.13 points, or 0.3%, at 20,457.46, its highest closing level since Dec. 2.
Canada’s annual inflation rate slowed to 6.3% in December, its lowest since February last year, helped by a drop in gas prices. Investors have worried that Bank of Canada tightening to cool inflation could push the domestic economy into recession.
“We’re way past peak inflation and starting to get closer to a more reasonable inflation number ... giving more comfort to the fact that central banks can slow down their interest rate (hiking) cycle,” said Sadiq Adatia, chief investment officer at BMO Asset Management.
The BoC has raised its benchmark interest rate at a record pace of 400 basis points in nine months to 4.25%. Money markets expect the rate to peak at about 4.50%, potentially next week when the central bank meets to decide on policy.
The Toronto market’s energy sector rose 1.4%, as oil settled 0.4% higher at $80.18 a barrel after major oil consumer China posted weak but expectation-beating annual economic growth data.
Industrials ended 0.8% higher as shares of Bombardier Inc climbed 9.5%. The company raised its 2022 forecast for revenue and free cash flow above analysts’ expectations, helped by robust demand for private planes.
The materials group, which includes precious and base metals miners and fertilizer companies, was a drag. It gave back some of its recent gains for a second day, falling 1.2%, as the price of gold declined.
Reuters, Globe staff
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