Wall Street’s main indexes ended sharply lower on Friday as Netflix shares plunged after a weak earnings report, capping a brutal week for stocks that saw the S&P 500 and Nasdaq log their biggest weekly percentage drops since the onset of the pandemic in March 2020.
Canada’s TSX was fully swept up in the selling action on Friday, closing down by more than 2%, its worst slide since Nov. 30 of last year. Shopify weighed heavily on the Canadian benchmark index, losing 13.4%, bringing its losses this year to more than 35%. It started the year as the most valuable company on the Toronto market but has since lost C$79 billion of its market capitalization.
A number of analysts cut price targets on Shopify this week, as the outlook for ecommerce growth slows amid anticipated lifting of pandemic restrictions. On Friday, Insider reported that Shopify was planning to terminate contracts with a number of warehouse and fulfillment partners. The company has not confirmed the report, which cited executives at four fulfillment companies in Shopify’s network. At least one analyst speculated that if the report is accurate, it could be a signal the company may grow its own distribution warehouses.
“Another day with a sea of red,” said Chhad Aul, chief investment officer & head of multi-asset solutions at SLGI Asset Management Inc.
“The theme so far this year has been a real focus on central banks becoming much more hawkish, whether it is the Fed in the U.S. or the Bank of Canada here at home.... We are watching carefully for an opportunity to add a little bit of risk. We are looking for panic selling,” Aul said.
Investors have raised bets that the Bank of Canada hikes its benchmark interest rate at a policy announcement next Wednesday. The Federal Reserve is also due to make a decision on interest rates next week.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 436.79 points, or 2.1%, at 20,621.39, its lowest closing level since Dec. 20.
The benchmark S&P 500 posted its third straight week of declines, ending 8.3% down from its early January record high.
Losses also deepened for the Nasdaq after the tech-heavy index earlier in the week confirmed it was in a correction, closing down over 10% from its November peak. The Nasdaq has now fallen 14.3% from its November peak and on Friday closed at its lowest level since June.
Netflix shares tumbled 21.8%, weighing on the S&P 500 and the Nasdaq, after the streaming giant forecast weak subscriber growth. Shares of competitor Walt Disney fell 6.9%, dragging on the Dow, while Roku also slid 9.1%.
“It has really been a continuation of a tech rout,” said Paul Nolte, portfolio manager at Kingsview Investment Management. “It’s really a combination of a rotation out of technology as well as very poor numbers from Netflix that I think is the catalyst for today.”
The Dow Jones Industrial Average fell 450.02 points, or 1.3%, to 34,265.37, the S&P 500 lost 84.79 points, or 1.89%, to 4,397.94 and the Nasdaq Composite dropped 385.10 points, or 2.72%, to 13,768.92.
For the week, the S&P 500 fell 5.7%, the Dow dropped 4.6% and the Nasdaq declined 7.6%.
The Dow fell for a sixth straight session, its longest streak of daily declines since February 2020.
The S&P 500 closed below its 200-day moving average, a key technical level, for the first time since June 2020.
“When markets get like they’ve gotten this week, the emotion is what takes over,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “Until it finds support, no one’s going care about anything fundamental.”
Stocks are off to a rough start in 2022, as a fast rise in Treasury yields amid concerns the Federal Reserve will become aggressive in controlling inflation has particularly hit tech and growth shares.
Investors are keenly focused on next week’s Fed meeting for more clarity on the central bank’s plans to tighten monetary policy in the coming months, after data last week showed U.S. consumer prices in December had the largest annual rise in nearly four decades.
“Between the Fed meeting and earnings, there is a lot that the market could be worried about next week,” said Anu Gaggar, global investment strategist at Commonwealth Financial Network.
Apple, Tesla and Microsoft are among the large companies due to report next week in a busy week of earnings results.
Declining issues outnumbered advancing ones on the NYSE by a 4.26-to-1 ratio; on Nasdaq, a 4.34-to-1 ratio favored decliners. The S&P 500 posted five new 52-week highs and 24 new lows; the Nasdaq Composite recorded 13 new highs and 1,029 new lows. About 14.6 billion shares changed hands in U.S. exchanges, compared with the 10.4 billion daily average over the last 20 sessions.
U.S. crude prices settled 0.5% lower at $85.14 a barrel as investors took profits after the global benchmarks touched seven-year highs this week.
In Toronto, the heavily-weighted financials group lost 1.2% and the materials group, which includes precious and base metals miners and fertilizer companies, ended 2.5% lower.
It was a good day for bond holders on Friday, as investors sought safety amid falling stock markets and concerns about potential conflict in Ukraine.
Yields have jumped this month as investors adjusted to the likelihood that the Federal Reserve will tighten monetary policy more aggressively to stave off unabated inflation.
Analysts say the rapid march higher was due for a pause.
“We got to where we got to very fast so you’re always liable to have a little bit of a pause for thought, and there is evidence of some players coming in and looking at this,” said Padhraic Garvey, regional head of research, Americas at ING.
Demand for U.S. government debt has also increased on concerns about potential conflict in Ukraine.
“Clearly if the Ukraine story was to go wrong there would be quite a significant bid for Treasuries, and this notion of the 10-year getting to 2% would be put on hold until we really understand what the implications of such a move would be,” Garvey said.
The top U.S. and Russian diplomats made no major breakthrough at talks on Ukraine on Friday but agreed to keep talking to try to resolve a crisis that has stoked fears of a military conflict.
Benchmark 10-year note yields fell to as low as 1.733% on Friday. They are down from 1.902% on Wednesday, which was the highest since Jan. 2020.
Reuters, Globe staff
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