U.S. and Canadian stocks ended sharply lower on Wednesday in a broad selloff across sectors ahead of key inflation data that could influence the path of future interest rate hikes by the Federal Reserve.
Several sources of disappointment were behind the decline in major indexes, including uncertainty about whether Tuesday’s elections will result in a Congress that would prevent the kinds of sweeping economic changes that make Wall Street nervous. A batch of sour profit reports from big-name companies like The Walt Disney Co. also hurt the market, while crypto prices plunged again amid the industry’s latest crisis of confidence.
Looming over all of it is the consumer prices report scheduled for Thursday, when the U.S. government will show just how bad inflation was across the country. That reading will likely have a big effect on how much further the Federal Reserve hikes interest rates to get inflation under control. Those rate hikes have been by far the dominant force shaking Wall Street this year.
The Federal Reserve has already hiked its key overnight interest rate up to a range of 3.75% to 4%, up from virtually zero in March, and a growing number of investors expect it to top 5% next year. Traders are split over whether the Fed will raise rates by 50 basis points or 75 basis points in December, according to CME Group’s Fedwatch tool.
Cryptocurrencies have felt some of the worst pain from the Fed’s whiplash move away from the record-low interest rates it instituted during the recession caused by the pandemic. Bitcoin fell even further Wednesday, off by more than 15% in late afternoon trading to below US$16,000 - far from the nearly US$69,000 it went for a year ago.
This latest plunge for crypto, including an 16% drop for ethereum, comes amid worries about the financial strength of one of the industry’s biggest trading exchanges, FTX. A mega player in the industry, Binance, said on Tuesday that it planned to buy its troubled rival to help it manage a crunch where users had been scrambling to pull their money out. But on Wednesday Binance said it walked away from the deal, which sent crypto prices reeling further.
Underscoring the effects of the latest collapse in the crypto world, the CEO of Binance said that “FTX going down is not good for anyone in the industry.”
“Do not view it as a `win for us,”' Changpeng Zhao, who goes by his initials CZ, said in a letter to Binance employees that he posted on Twitter. “User confidence is severely shaken. Regulators will scrutinize exchanges even more.”
Stocks of companies embedded in the crypto economy also continued to sink. Robinhood Markets lost another 13.7% and is down nearly 32% so far this week. TSX-listed Galaxy Digital Holdings fell 15.7% on Wednesday, while Coinbase Global fell nearly 10%.
Elsewhere on Wall Street, Disney sank 12.5% for the largest loss in the S&P 500 after reporting results for the latest quarter that fell well short of analysts’ expectations. It also gave a weak earnings forecast.
Facebook parent Meta Platforms was a bright spot. It rose 5.6% after saying it will cut costs by laying off 11,000, or about 13% of its workforce, as it contends with faltering revenue and broader tech industry woes.
Investors monitored an expected shift in the balance of power in the U.S. government. Republicans were still favoured to win control of the House of Representatives but key races were too close to call, with a better-than-expected showing by Democrats diminishing the prospect of a so-called red wave of Republican gains.
“What was really more expected in the market was a red wave,” said Jay Hatfield, CEO of Infrastructure Capital Management in New York. “I think we were in a unique situation where the more the Republicans won, the better off the market would have been. At least there would have been some stocks strongly rallying, like defense and energy stocks.”
Canada’s main stock index pulled back from a near two-month high the day before, with a drop in oil prices leading to some of the steepest losses. The S&P/TSX Composite Index ended down 316.06 points, or 1.6%, at 19,344.25.
U.S. crude oil futures settled 3.5% lower at $85.83 a barrel, after industry data showed that U.S. crude stockpiles rose more than expected and on concerns that a rebound in COVID-19 cases in top importer China would hurt fuel demand.
The Toronto market’s energy sector fell 4.2%, while the materials group, which includes precious and base metals miners and fertilizer companies, lost 2.5%.
Technology was also a drag, falling nearly 2%, and heavily-weighted financials ended 1.3% lower.
It included a decline of 1.4% for the shares of Bank of Montreal after a U.S. jury on Tuesday found the bank’s local unit liable for more than $550 million in damages for a Ponzi scheme operated by a Minnesota businessman.
Oil and gas pipeline company TC Energy Corp said it was looking to sell $5 billion worth of assets to repay debt and fund new projects. Its shares ended 2.5% higher.
On Wall Street, the S&P 500 declined 2.08% to end the session at 3,748.58 points. The Nasdaq declined 2.48% to 10,353.18 points, while the Dow Jones Industrial Average declined 1.95% to 32,513.94 points.
Wednesday’s drop ended a three-day rally in which the S&P 500 had gained almost 3%.
Tesla Inc dropped 7.2% to a two-year low after Chief Executive Elon Musk late on Tuesday disclosed that he sold US$3.95 billion worth of shares in the electric-vehicle maker days after he closed the $44 billion deal for Twitter Inc.
Clean energy shares, which typically benefit under a Democratic leadership, rose, with the Invesco Solar ETF up almost 1%.
Declining stocks outnumbered rising ones within the S&P 500 by a 11.9-to-one ratio. The S&P 500 posted 10 new highs and 16 new lows; the Nasdaq recorded 69 new highs and 463 new lows. Volume on U.S. exchanges was relatively light, with 11.6 billion shares traded, compared with an average of 11.8 billion shares over the previous 20 sessions.
Canadian government bond yields eased across a flatter curve, with the 10-year down 5.8 basis points at 3.421%.
Reuters, The Associated Press, Globe staff
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