Wall Street’s main indexes fell on Wednesday, with the tech-heavy Nasdaq confirming a correction, after a diverse set of corporate earnings and as investors continued to worry about higher U.S. Treasury yields and the Federal Reserve tightening monetary policy. The TSX also lost ground, although a big rally in the materials sector - and precious metals stocks in particular - limited losses.
The Nasdaq ended down 10.7% from its Nov. 19 closing record high, as stocks sold off into the market close. A correction is confirmed when an index closes 10% or more below its record closing level.
The Nasdaq’s last correction was in early 2021, when the tech-heavy index fell more than 10% from Feb. 12 to March 8.
On Wednesday, Apple shares fell 2.1%, weighing most on the Nasdaq, while declines in Tesla and Amazon also dragged on the index.
Stocks have gotten off to a rocky start in 2022, as a fast rise in Treasury yields amid concerns the Fed will become aggressive in controlling inflation has particularly hit tech and growth shares. The benchmark S&P 500 is down about 5% so far this year.
“Any beginning of tightening often results in significant volatility and I think there is always that risk that there is a policy error and it ends the economic cycle,” said Kristina Hooper, chief global market strategist at Invesco. “So we just have a lot of apprehension.”
The Toronto Stock Exchange’s S&P/TSX composite index ended down 69.41 points, or 0.3%, at 21,205.16, its lowest closing level since Jan. 10.
Bond yields globally have climbed this year as investors bet that central banks will hike interest rates over the coming months to tamp down inflation. Canada’s 10-year yield touched its highest level since March 2019 at 1.905% before pulling back to 1.874%.
Canada’s annual inflation rate accelerated in December to hit a 30-year high, data showed, bolstering expectations the Bank of Canada could hike interest rates as soon as next week.
“The adjustment to higher yields will probably result in more downside volatility in the high-multiple, low-margin growth stocks,” said Stan Wong, a portfolio manager at Scotia Wealth Management. “Technology is the area that everybody is watching right now.”
Higher interest rates reduce the value to investors of the future cash flows that technology and other high-growth sectors are expected to produce.
Tech stocks on the Toronto market fell 2% to hit their lowest level since May last year. The sector has fallen 25% from its September peak.
Financials, the most heavily-weighted sector on the TSX, lost 1.4%, while consumer discretionary shares ended 2.2% lower.
The energy sector fell 0.4% despite further strength in oil prices.
U.S. crude futures settled 1.8% higher at $86.96 a barrel after a fire on a pipeline from Iraq to Turkey briefly stopped flows, while gold jumped about $27 to $1,840.54 per ounce.
The materials group, which includes precious and base metals miners and fertilizer companies, added 4.2%.
Big winners included Barrick Gold Corp. up 8.52 per cent, Yamana Gold up 8.19 per cent, and Kinross Gold Corp. up 7.86 per cent.
The gold price was likely boosted by some slackening of bond yields, said Michael Currie, vice-president and investment adviser at TD Wealth.
“The 10 year yield in the U.S. for several days now has had a really really good start, and it’s had a little bit of a pullback today, so that has definitely helped gold.”
The Dow Jones Industrial Average fell 339.82 points, or 0.96%, to 35,028.65, the S&P 500 lost 44.35 points, or 0.97%, to 4,532.76 and the Nasdaq Composite dropped 166.64 points, or 1.15%, to 14,340.26.
Consumer discretionary fell most among S&P 500 sectors, dropping 1.8%, while financials dropped about 1.7% and technology slid 1.4%.
The small-cap Russell 2000 fell 1.6%.
Stocks had tumbled on Tuesday, with the Nasdaq falling 2.6%, after weak results from Goldman Sachs and a spike in Treasury yields. U.S. Treasury yields eased on Wednesday from two-year highs.
Investors are looking to next week’s Fed policy meeting for more clarity on central bankers’ plans to rein in inflation. Data last week showed U.S. consumer prices increased solidly in December, culminating in the largest annual rise in inflation in nearly four decades.
“We have had a bit of a sell-off here and that has been predicated on this concern around the Fed and interest rates,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.
In company news, shares of Procter & Gamble rose 3.4% after the consumer goods company bumped up its annual sales forecast.
Bank of America Corp reported a better-than-expected 30% jump in quarterly profit, while Morgan Stanley also reported fourth-quarter profit which beat market expectations, following uneven results from other banks. Bank of America shares rose 0.4%, while Morgan Stanley shares gained 1.8%.
Declining issues outnumbered advancing ones on the NYSE by a 2.06-to-1 ratio; on Nasdaq, a 2.09-to-1 ratio favored decliners. The S&P 500 posted 13 new 52-week highs and seven new lows; the Nasdaq Composite recorded 23 new highs and 630 new lows. About 11.4 billion shares changed hands in U.S. exchanges, compared with the 10 billion daily average over the last 20 sessions.
Reuters, The Canadian Press, Globe staff
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