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Wall Street’s main indexes posted their biggest weekly drop of 2023 after sharp losses on Friday, as investors braced for the possibility of more aggressive rate hikes from the U.S. Federal Reserve as U.S. economic data pointed to resilient consumers. But Canada’s main stock index ended higher, recouping a small part of its recent decline, as higher oil prices and a strong start to the domestic bank earnings season offset some of the uncertainty about U.S. interest rates.

For the blue-chip Dow Jones Industrial Average, the 3% fall was its biggest weekly decline since September. It was also the Dow’s fourth straight weekly decline, its longest losing streak for nearly 10 months.

The S&P 500 and Nasdaq Composite were also down 2.7% and 3.3%, respectively. The S&P/TSX Composite Index was down 1.4%, its third straight week of losses. On Thursday, it posted its lowest closing level in six weeks.

After a strong January, stocks have retreated this month as a slew of economic data amplified worries that the U.S. central bank might have to keep rates higher for longer.

Data on Friday showed the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, shot up 0.6% last month after gaining just 0.2% in December. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1.8% last month, exceeding forecasts for a 1.3% rise.

Jason Pride, chief investment officer of private wealth at Glenmede, said previous market cycles had witnessed similar delayed reactions by the market to rising interest rates and data releases, which helps explain volatile trading patterns as investors slowly adjust.

“This market has not yet realized the likelihood of a recession that we think is reality,” he said, noting past rate hikes normally had taken between six and 18 months before their effects had fully filtered through into the economy.

“We don’t think (a recession is) a given, but there’s a higher likelihood than the market has embedded in its thought process.”

Traders of futures tied to the Fed’s policy rate added to bets of at least three more rate hikes this year, with the peak rate seen in the range of 5.25%-5.5% by June.

Cleveland Fed President Loretta Mester said on Friday the Fed should raise interest rates higher than necessary if need be to get inflation fully under control.

The Toronto Stock Exchange’s S&P/TSX Composite Index ended up 31 points, or 0.15%, at 20,219.19 after losses in the previous five sessions.

Most of the major sectors on the TSX lost ground, including a decline of 1.7% for technology, which is particularly sensitive to higher rates.

In contrast, heavily-weighted financials advanced 0.6% as Canadian Imperial Bank of Commerce trounced first-quarter profit estimates.

Its shares ended 2.7% higher, while Toronto-Dominion Bank shares rose 0.8% after the lender said it received all regulatory approvals to complete its $1.3 billion acquisition of New York-based boutique investment bank Cowen Inc.

Energy was also a bright spot, climbing 1.9% as oil settled 1.2% higher at $76.32 a barrel on the prospect of Russian export cuts.

The Dow Jones Industrial Average fell 336.99 points, or 1.02%, to 32,816.92, the S&P 500 lost 42.28 points, or 1.05%, to 3,970.04 and the Nasdaq Composite dropped 195.46 points, or 1.69%, to 11,394.94.

Nine of the 11 major S&P sectors fell, with real estate , technology and consumer discretionary the biggest decliners. Communication services fell 1.4% to a sixth straight loss, its worst run since a similar six-session skid in August.

Megacap stocks including Tesla Inc, Inc and Nvidia Corp slid between 1.6% and 2.6% as Treasury yields rose.

The yield on two-year Treasury notes, which are highly sensitive to Fed policy, climbed to 4.826% - its highest in nearly four months.

Boeing Co slid 4.8% after the Federal Aviation Administration said the planemaker temporarily halted deliveries of its 787 Dreamliner jets.

Adobe Inc sank 7.6% on reports the U.S. Justice Department would block the Photoshop maker’s $20 billion bid for cloud-based designer platform Figma.

The decline in Adobe’s stock was the largest since Sept. 15, the day the Figma agreement was announced.

Meanwhile, Range Resources Corp jumped 11.9% in late trading, its biggest gain in nine months, after Bloomberg News reported that Pioneer Natural Resources was in talks to buy it. Pioneer’s stock fell 4.1% on the report.

Volume on U.S. exchanges was 10.31 billion shares, compared with the 11.53 billion average for the full session over the last 20 trading days. The S&P 500 posted 2 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 44 new highs and 162 new lows.

Reuters, Globe staff

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