Stocks fell sharply on Wednesday, sending the Canadian benchmark index to its lowest level in nearly two years, as concerns deepened over the health of the global economy and the outlook for corporate profits.
The technology-heavy Nasdaq Composite Index suffered its worst one-day decline of the year and fell into official correction territory, defined as a drop of at least 10 per cent from a record high.
Both the Dow Jones Industrial Average and the S&P 500 erased their year-to-date gains, falling further beneath their 200-day moving averages – a technical threshold that reflects deep concern among investors.
“It looks like more panic and fear as the selling has continued to roll,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina, said.
Canada’s S&P/TSX Composite Index fell the most in more than three years, and is now down 8 per cent in 2018. It closed at 14,909.13, down 376.04 points or 2.5 per cent.
The S&P 500 closed at 2656.10, down 84.59 points or 3.1 per cent, marking its sixth day of consecutive losses. The index has fallen 9.4 per cent from its record high on Sept. 20. The Dow tumbled 608.01 points, or 2.4 per cent, to 24,583.42.
The chaos is occurring as investors mull slowing Chinese economic growth, ongoing global trade tensions and some signs that corporate sales and profit margins may be getting squeezed.
Uncertainty over Brexit and Italy’s budget drama aren’t helping matters. Investors might be rattled as well by news of pipe bombs being sent to Hillary Clinton, Barrack Obama and George Soros, raising alarms of political instability ahead of U.S midterm elections.
In Canada, the downturn coincided with an interest rate hike by the Bank of Canada. While the rate hike was expected, the central bank suggested that it could get more aggressive with rate hikes, presenting fresh concerns about the housing market and the ability of consumers to service their heavy debt loads.
Some of the biggest casualties during the day’s trading were stocks with exposure to the global economy.
Within the S&P 500, technology stocks sank 4.4 per cent, energy stocks fell 3.8 per cent and industrials fell 3.4 per cent.
In Canada, Royal Bank of Canada and Suncor Energy Inc. fell 3.9 per cent each. Shopify Inc., which provides technology for online commerce, fell 7.8 per cent, and Air Canada fell 8 per cent. Cannabis producers, which recently celebrated a legalized recreational market of marijuana in Canada, offered no support. Canopy Growth Corp. fell 7.6 per cent.
“It’s a big, global risk-off trade,” Paul Zemsky, chief investment officer at Voya Investment Management in New York, said.
He added: “We’ve had some headwinds – higher interest rates affecting housing, tariffs causing input costs to manufacturers to go up, which makes earnings look not as stellar...but that doesn’t mean the whole economy is rolling over.”
Indeed, stocks are falling amid upbeat financial results. U.S. companies in particular have been rolling out third quarter numbers that are beating analysts' expectations. Among companies in the S&P 500 that have reported their results, more than 80 per cent have beaten estimates, according to I/B/E/S data from Refinitiv. Profits are on track to rise 22.4 per cent from the third quarter of last year, fuelled partly by recent U.S. tax cuts.
After markets closed on Wednesday, Microsoft Corp. reported a 19 per cent increase in its quarterly sales along with expectation-busting profit. Although the shares fell 5.4 per cent during regular trading, they rebounded more than 4 per cent in extended trading.
Electric-car manufacturer Tesla Inc. also beat expectations and reported its third-ever quarterly profit. The shares rose about 11 per cent in extended trading.
But some observers have noted that investors may be turning their attention to what the rest of the year looks like, as some companies warn of rising operating costs and turn cautious about global trade, particularly as U.S. tariffs on Chinese imports kick in.
"You’ve seen more discouraging (company) commentary this quarter than you have the last two,” Tom Martin, senior portfolio manager with Globalt Investments, said. “You’re really starting to get more of a groundswell of caution. There’s some concern about the fourth quarter and what that’s going to look like.”
Amid the mayhem, investors rushed into typical havens that can tend to perform well even during times of economic uncertainty. U.S. utilities rose 2.3 per cent and real estate stocks fell 1.1 per cent. Government bonds rose, sending yields down toward their lowest levels in a month. The yield on the 10-year U.S. Treasury bond fell to 3.1 per cent, after touching a seven-year high on Oct. 5.
With files from Reuters and Associated Press.