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U.S. and Canadian stocks ended solidly lower on Thursday, with shares of Tesla falling hard after its quarterly results and longer-term Treasury yields surging as Federal Reserve Chair Jerome Powell spoke about monetary policy and investors worried whether interest rates would stay higher for longer.

Tesla shares dropped 9.3% a day after the carmaker missed Wall Street expectations on third-quarter gross margin, profit and revenue, and its CEO Elon Musk said he was concerned about high interest rates affecting demand.

Treasury yields rose further and the benchmark U.S. 10-year note yield was at a 16-year high of almost 5%.

“The 10-year looks like it’s establishing a new higher trend, which ... is putting pressure on equities, at least in the short term,” said Oliver Pursche, senior vice president, advisor for Wealthspire Advisors in Westport, Connecticut. “Markets were hoping that Jay Powell would indicate that the Fed is going to pause in its interest rate hikes, and he effectively hinted at the idea that they’re going to have to raise again if they continue to have elevated concerns over inflation.”

Powell said at the Economic Club in New York that U.S. central bankers were moving carefully on policy after aggressive rate hikes last year, but he added that the economy’s strength and continued tight labour markets could warrant further rate hikes.

The Dow Jones Industrial Average fell 250.91 points, or 0.75%, to 33,414.17, the S&P 500 lost 36.6 points, or 0.85%, to 4,278 and the Nasdaq Composite dropped 128.13 points, or 0.96%, to 13,186.18.

The rate-sensitive real estate sector dropped 2.4% and was the day’s worst-performing S&P 500 sector.

The Cboe Volatility index jumped to its highest close since March.

Data this week has pointed to strong consumer demand and a tight labour market. A U.S. Labor Department report on Thursday showed the number of Americans filing new claims for unemployment benefits fell to a nine-month low last week.

The labour market is showing strength even though the central bank has raised its benchmark overnight interest rate by 525 basis points since March 2022.

“Without a doubt, the No. 1 driver in our eyes is the better-than-expected economic data continuing for longer and that’s lifted the back end of the Treasury yield curve,” said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth Management in New York.

The back end of the curve, or long-dated Treasuries, is more driven by longer-term growth and inflation expectations than just policy like the short end, he said.

“We’re of the view the tighter policy does work and that it slows economic growth,” Bowman said. “But it’s more of a late fourth-quarter, early first-quarter story than right now, given the current labour market data is still strong and initial claims in particular.”

Shorter-dated rates, which are more sensitive to changes in central bank rate expectations, have risen less sharply than longer yields during the recent sell-off. Canadian bond yields are heavily influenced by moves throughout the U.S. treasury market.

Real estate shares were also among the biggest decliners in Canada Thursday. The sector fell 1.7% while heavily weighted financials were down nearly 1%. The S&P/TSX composite index ended down 101.89 points, or 0.5%, at 19,348.81, its lowest closing level since Oct. 6.

Among stock movers, Canada Goose Holdings Inc shares fell 4.4% after two brokerages downgraded the stock.

Energy was the lone sector to post gains for a second straight day in Toronto. It was up 0.2% as oil settled 1.2% higher US$89.37 a barrel on worries that Israel’s military campaign in Gaza could escalate to a regional conflict.

Also in U.S. earnings, Netflix Inc shares jumped 16.1% after the world’s No. 1 streaming company by subscriber count said it was raising prices for some of its plans in the United States, Britain and France after adding 9 million users in the third quarter.

Shares of American Airlines rose 0.8% after the company posted upbeat quarterly results. On Wednesday, airline stocks fell sharply after United Airlines forecast current-quarter profit below analyst expectations.

Volume on U.S. exchanges was 11.82 billion shares, compared with the 10.50 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 3.96-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favored decliners. The S&P 500 posted 2 new 52-week highs and 37 new lows; the Nasdaq Composite recorded 15 new highs and 370 new lows.

Reuters, Globe staff

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