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Major U.S. and Canadian stock indexes ended lower on Thursday, falling for a third straight session as investors reacted to the Federal Reserve’s latest aggressive move to rein in inflation by selling growth stocks, including technology companies. Benchmark U.S. Treasury yields hit an 11-year high and a key part of the U.S. yield curve was the most inverted in at least two decades, further raising concerns of a looming recession.

The Fed lifted rates by an expected 75 basis points on Wednesday and signaled a longer trajectory for higher policy rates than markets had priced in. The U.S. central bank’s projections for economic growth released on Wednesday were also eye-catching, with growth of just 0.2% this year, rising to 1.2% for 2023.

Jitters were already present in the market after a number of companies - most recently FedEx Corp and Ford Motor Co - issued dire outlooks for earnings.

As of Friday, the S&P 500′s estimated earnings growth for the third quarter is at 5%, according to Refinitiv data. Excluding the energy sector, the growth rate is at -1.7%.

The S&P 500′s forward price-to-earnings ratio, a common metric for valuing stocks, is at 16.8 times earnings - far below the nearly 22 times forward P/E that stocks commanded at the start of the year.

The S&P 500 tech sector has slumped 28% so far this year, compared with a 21.2% decline in the benchmark index.

“If we continue to have sticky inflation, and if (Fed Chair Jerome) Powell sticks to his guns as he indicates, I think we enter recession and we see significant drawdown on earnings expectations,” said Mike Mullaney, director of global markets at Boston Partners.

“If this happens, I have high conviction under those conditions that we break 3,636,” he added, referring to the S&P 500′s mid-June low, its weakest point of the year.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 181.86 points, or nearly 1%, at 19,002.68, its lowest closing level since July 26.

Rate-sensitive technology stocks fell 2.8%, while health-care stocks dropped 2.3%.

U.S. crude oil futures settled 0.7% higher at $83.49 a barrel in volatile trading focused on Russian supply concerns. Still, the TSX energy group fell 1.8%, while heavily weighted financials ended 0.7% lower.

On Wall Street, nine of the 11 major S&P sectors fell, led by declines of 2.2% and 1.7%, respectively, in consumer discretionary and financial stocks.

Shares of megacap technology and growth companies such as Inc, Tesla Inc and Nvidia Corp fell between 1% and 5.3%.

Rising yields weigh particularly on valuations of companies in the technology sector, which have high expected future earnings and form a significant part of the market-cap weighted indexes such as the S&P 500.

The Dow Jones Industrial Average fell 107.1 points, or 0.35%, to 30,076.68, the S&P 500 lost 31.94 points, or 0.84%, to 3,757.99 and the Nasdaq Composite dropped 153.39 points, or 1.37%, to 11,066.81.

Major U.S. airlines - which have enjoyed a rebound amid increased travel as pandemic restrictions end - were also down, with United Airlines and American Airlines falling 4.6% and 3.9% respectively. This took losses in the last three days to 11% for United and 10.6% for American.

JetBlue Airways Corp, off 7.1% and also recording a third straight loss, closed at its lowest level since March 2020. Darden Restaurants Inc slid 4.4% after the Olive Garden parent reported downbeat first-quarter sales.

The S&P 500 posted one new 52-week high and 123 new lows; the Nasdaq Composite recorded 18 new highs and 699 new lows.

In bond markets, the yield curve between U.S. two-year and 10-year notes inverted as far as minus 58 basis points, the most inverted level since at least 2000, indicating rising concerns about an impending recession. It was last at minus 41 basis points.

Two-year yields reached 4.163%, the highest since October 2007. Five-year yields hit 3.942%, the highest since November 2007 and benchmark 10-year yields jumped to 3.716%, the highest since February 2011.

Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries.

The 10-year Canadian bond yield rose 7.7 basis points to 3.119% but fell 10.5 basis points further below the equivalent U.S. rate to a gap of 57.5 basis points.

The Canadian dollar was trading 0.2% lower at 1.3490 to the greenback, or 74.13 U.S. cents, after touching its weakest intraday level since July 2020.

Canadian retail sales data, due on Friday, could offer clues on the strength of the domestic economy, with money markets expecting the Bank of Canada to raise interest rates further next month.

Reuters, Globe staff

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