The tech-heavy Nasdaq closed down on Wednesday, weighed by streaming giant Netflix’s surprise drop in subscribers which shook investor confidence in other high-growth companies, fearful they may face similar post-pandemic performance issues.
By contrast, the blue-chip Dow was driven to a higher close by positive earnings from consumer giant Procter & Gamble and IT firm IBM Corp. The duo rose 2.7 and 7.1%, respectively.
The TSX ended with a very small loss, despite a solid advance in the energy sector, as Canadian investors took in a hotter-than-expected inflation report for March that provided another shot of confidence to predictions that interest rates are heading much higher.
The consumer price index was a full percentage point higher than February’s 5.7% pace and well ahead of the 6.1% economists had expected.
“Headline inflation at 6.7% year-over-year is at its hottest since January 1991 but just wait until next month,” Derek Holt, Head of Capital Markets Economics at Scotiabank, said in a note. For the April report, Statistics Canada will be adding used vehicle prices to the CPI index. According to Holt, that “will likely pop” inflation to over 8% compared to April of 2021, and mark the highest inflation reading since the early 1980s.
“When they add used vehicles it will be the final blow to the long false argument that Canada has been managing inflation better than the U.S. and other countries because of a lower official inflation rate. That was only ever due to mismeasurement,” Holt said.
Other economists were a little less critical of the Bank of Canada’s actions to date on tightening monetary policy.
The inflation number was “obviously a significant number but I think in the context of the BoC having already signaled that they are willing to take an aggressive tact in fighting inflation, I don’t know that it changes much for the BoC,” said Andrew Kelvin, Chief Canada Strategist, TD Securities
Last week, the Bank of Canada raised its benchmark rate by half a percentage point to 1%, its biggest single hike in more than two decades, and said the economy was strong enough to handle further tightening.
The Canadian dollar shot up to above the 80 cents US level after the inflation report, up about three-quarters of a cent on the day.
Canadian bond yields were higher Wednesday but lost some steam as the day progressed. The 2-year touched its highest since October 2008 at 2.590% before dipping slightly to 2.584%, up 6.4 basis points on the day.
The 5-year bond - which influences fixed mortgage rates - was up 5 basis points after hitting a high of 2.762% - a fresh 11-year high.
The yield on the benchmark 10-year U.S. Treasury note receded to 2.85% after a blistering rally that pushed it close to the key 3% level earlier in the session. Traders said buying interest in bonds - which pushes yields lower - picked up as the 3% mark neared.
The S&P/TSX Composite Index closed at 21,998.38, down 20.44 points, or 0.09%. The energy sector rose 1.4%. But tech also had a rough session in Toronto, losing 5.4%. Shopify lost 13.9%. Bloomberg News, citing unnamed people familiar with the matter, said the company is in talks to buy technology startup Deliverr - a move that would help the Canadian e-commerce company expand in fulfillment services.
Among other stocks seeing action on Bay Street, Rogers Communications Inc gained 3.1% after the company beat analysts’ average estimate for quarterly profit, benefiting from a steady demand for its wireless and internet services, and said it was on track to close its acquisition of smaller rival Shaw in the second quarter.
On Wall Street, Netflix Inc plunged 35.1%, its largest one-day fall in over a decade, after it blamed inflation, the Ukraine war and fierce competition for the subscriber decline and predicted deeper losses ahead.
The ripple effects were felt both by financial technology names and companies whose fortunes were seen to have been boosted by pandemic trends such as lockdown measures.
Streaming peers Walt Disney, Roku and Warner Bros Discovery all dropped more than 5.5%, while stay-at-home darlings Zoom Video Communications, Doordash and Peloton Interactive saw their shares fall between 6% and 11.3%.
Suffering financials included PayPal Holdings Inc and Block Inc, which both fell more than 8.5%. Marqeta Inc and SoFi Technologies Inc declined 5.6% and 6.2% respectively.
“Once profits move so far, it becomes harder to get that next little bit of growth, and it’s harder to obtain it in the late cycle,” said Jason Pride, chief investment officer of private wealth at Glenmede.
“I think the market is beginning to comprehend that, and will need to comprehend that as we go through the year.”
Market-leading technology and growth stocks have struggled this year as investors worry that rising interest rates will dent their future earnings. The Nasdaq is down nearly 14% so far this year, while the benchmark S&P 500 is down 6.4%.
Overall, the earnings season has started on a strong note. Of the 60 companies in the S&P 500 index that have reported results so far, 80% exceeded profit expectations, as per Refinitiv data. Typically, 66% beat estimates.
The Dow Jones Industrial Average rose 249.59 points, or 0.71%, to 35,160.79, the S&P 500 lost 2.76 points, or 0.06%, to 4,459.45 and the Nasdaq Composite dropped 166.59 points, or 1.22%, to 13,453.07.
The communication services sector declined 4.1%, although eight of the 11 major S&P 500 sectors gained, led by the real estate index which posted its best finish since Jan. 4. The consumer staples benchmark was just behind it, climbing to a second-straight record close.
Meanwhile, the latest data points on the Federal Reserve’s monetary policy tightening plans were released in the afternoon.
Its “Beige Book” showed the U.S. economy expanded at a moderate pace from February through early April, while San Francisco Federal Reserve President Mary Daly said she believes the case for a half-percentage-point interest rate hike next month is “complete.”
Tesla Inc fell 5%, but was trading higher after posting record deliveries and higher revenue in its first-quarter results after the close.
Investors had been concerned about the electric automaker’s ability to meet its ambitious 2022 delivery target after its biggest factory in Shanghai was shut as part of the city’s COVID-19 lockdown.
United Airlines Holdings Inc gained 1.2%, helping the S&P 1500 Airlines index to a sixth advance in the past seven sessions. United’s shares dipped marginally after it reported earnings after the closing bell.
The volume on U.S. exchanges was 10.85 billion shares, compared with the 11.61 billion average for the full session over the last 20 trading days.
The S&P 500 posted 70 new 52-week highs and three new lows; the Nasdaq Composite recorded 88 new highs and 164 new lows.
Globe staff, with files from Reuters
Editor’s note: An earlier version suggested the TSX ended with a small gain. As prices settled, it ended with a small loss.
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