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Wall Street turned rally to sell-off on Tuesday, reversing earlier gains as impending monetary tightening from the Federal Reserve once again pulled growth stocks back into red territory. The Canadian stock market tracked that action, one day ahead of a widely expected rate hike by the Bank of Canada, and ended down 0.34% - although energy stocks rallied on a jump in crude oil prices.

All three major U.S. stock indexes turned from green to red early in the afternoon, with market-leading, interest-rate sensitive growth stocks falling from the front of the pack to the rear.

The turnabout began in earnest shortly after remarks from Fed Governor Lael Brainard, who reiterated the need for the U.S. Federal Reserve to “expeditiously” take on decades-high inflation.

“The comments coming out from Fed officials have been more hawkish than the markets have anticipated,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “(Brainard) has generally been nondescript, but now she’s more forceful in her commentary, and that’s getting people to sit up and take notice.”

The Labor Department’s CPI report showed the prices urban American consumers pay for a basket of goods posted the biggest monthly jump since September 2005, and an annual surge of 8.5%, the hottest year-on-year inflation number in more than four decades.

Much of the topline CPI growth was attributable to an 18.3% monthly surge in gasoline prices, to a record high of $4.33 per gallon.

Still, a faint silver lining was that inflation unexpectedly slowed in March on a month-over-month basis, after excluding the costs of food and fuel.

The Fed pays close attention to that number. But overall, the report did little to budge the needle of expectations regarding impending interest rate hikes from the Federal Reserve.

“It’s reiteration the Fed can’t be sitting back here,” Nolte added. “They need to get moving, post-haste.”

Early session gains were also dampened after a poor US$34 billion 10-year Treasury auction, which helped benchmark bond yields bounce off session lows.

The benchmark 10-year Treasury yield in afternoon trading was down 6.1 basis points to 2.721%, its first decline in eight sessions, as the inflation number had been priced in and also reflecting the market’s unease that an aggressive policy response to inflation from the Federal Reserve could undermine economic growth.

Canadian government bond yields were lower across the curve, reflecting the move in U.S. Treasuries. The 10-year fell 6 basis points to 2.639%, after touching its highest since January 2014 at 2.735% earlier in the day.

The Bank of Canada is expected to announce its second interest rate hike of the year at Wednesday’s policy meeting, with economists predicting it will be the largest in two decades – half a percentage point – in response to rising inflation rates.

The Dow Jones Industrial Average fell 87.72 points, or 0.26%, to 34,220.36, the S&P 500 lost 15.08 points, or 0.34%, to 4,397.45 and the Nasdaq Composite dropped 40.38 points, or 0.3%, to 13,371.57.

Energy shares enjoyed the largest percentage gain among the 11 major sectors in the S&P 500, jumping 1.7% on the back of surging crude prices.

They also were the biggest gainer on the TSX, rising more than 2%. The S&P/TSX Composite Index closed down 75.08 points at 21,715.41. Most sectors were lower, including a 1% drop in financials. Since the start of the year, the Toronto market has advanced 2.3%, one of few major global benchmarks to gain ground.

Oil prices rallied Tuesday as lockdowns eased in Shanghai and as Russian oil and gas condensate production fell to 2020 lows and OPEC warned it would be impossible to replace potential supply losses from Russia.

Brent crude futures rose $6.16, or 6.3%, to settle at $104.64 a barrel. U.S. West Texas Intermediate rose $6.31, or 6.7%, to settle at $100.60. On Monday, both benchmarks fell about 4%.

Shanghai said more than 7,000 residential units had been classified as lower-risk areas after reporting no new infections for 14 days. Districts have been announcing which compounds can be opened up.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) warned it would be impossible to replace 7 million bpd of Russian oil and other liquids exports lost in the event of sanctions or voluntary actions.

First-quarter earnings season bursts through the starting gate later this week, with big banks leading the way.

Analysts have curbed their first-quarter optimism. Annual S&P 500 earnings growth was recently estimated to be 6.1%, down from 7.5% at the beginning of the year.

CrowdStrike Holdings Inc rose 3.2% after Goldman Sachs upgraded the cybersecurity company’s shares to “buy,” citing elevated demand.

Declining issues outnumbered advancing ones on the NYSE by a 1.07-to-1 ratio; on Nasdaq, a 1.26-to-1 ratio favored decliners. The S&P 500 posted 24 new 52-week highs and 15 new lows; the Nasdaq Composite recorded 53 new highs and 246 new lows. Volume on U.S. exchanges was 11.25 billion shares, compared with the 12.60 billion average over the last 20 trading days.

Reuters, The Associated Press, Globe staff

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