Major North American stock indexes closed lower on Thursday as investors took profits, particularly in technology stocks after a three-day rally, while multiple Federal Reserve officials were out talking about inflation and interest rate hikes.
Canada’s TSX closed down just over 100 points, as Shopify dove 8.8%. That brought the Canadian tech firm’s market capitalization down to $167.43-billion, which is now not only below Royal Bank of Canada’s $207.14-billion, but also Toronto-Dominion Bank’s $185.62 billion. Shopify lost its crown to RBC as Canada’s most valued stock last week. It is still valued well above fourth place Brookfield Asset Management, which has a market cap of $114.42-billion.
Interest-rate sensitive growth stocks such as technology lagged the broader market on the last session before the fourth-quarter earnings season starts in earnest.
Several Fed officials spoke publicly about battling high inflation. Lael Brainard was the latest, and most senior, U.S. central banker to signal the Fed was getting ready to start raising rates in March.
Other officials, including Chicago Fed President Charles Evans, talked about the need for tighter policy while Philadelphia Fed President Patrick Harker also discussed a March rate hike after San Francisco Fed President Mary Daly had mentioned a March lift-off late on Wednesday.
“When Brainard says we’ve got to do something, they’re going do something,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Mass. He pointed to Brainard as one of the Fed’s most dovish officials.
“There doesn’t seem to be much debate left within the Fed about what direction they’re going, and not even much about how fast they should get there,” he added.
The Dow Jones Industrial Average fell 176.7 points, or 0.49%, to 36,113.62, the S&P 500 lost 67.32 points, or 1.42%, to 4,659.03 and the Nasdaq Composite dropped 381.58 points to 14,806.81.
It did not help that all the rate hike talk followed the technology-laden Nasdaq’s 1.7% advance in this week’s first three sessions.
Even though U.S. Treasury 10-year yields were falling on Thursday, investors went ahead and took their profits in Nasdaq stocks, according to Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in St. Louis.
“We had a pretty nice rebound in the Nasdaq the last few days, so there might just be some lingering nervousness around rates the Fed and some profit taking, especially ahead of earnings,” said the strategist.
In late afternoon trading, the benchmark U.S. 10-year yield slipped 3 basis points to 1.695%
A solid auction of U.S. 30-year bonds on Thursday, following a lackluster 10-year note sale the previous session, has spurred bids in Treasuries, pushing yields lower.
Adding some anxiety for investors, U.S. companies are due to report results on the final quarter of 2021 in the coming weeks with banks JPMorgan Chase, Citigroup and Wells Fargo set to start the ball rolling on Friday, while big technology companies report next week.
Year-over-year earnings growth from S&P 500 companies were expected to be lower in the fourth quarter compared with the first three quarters but still strong at 22.4%, according to IBES data from Refinitiv.
Retail investors have also raised their exposure to bank stocks ahead of the earnings announcements, according to Vanda Research’s weekly report on retail flows.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 102.04 points, or 0.5%, at 21,292.96, pulling back from its highest closing level in nearly seven weeks the previous day.
The Toronto market’s technology sector fell 2.7%.
The TSX materials group, which includes precious and base metals miners and fertilizer companies, lost 1.3%, while energy was down 0.6% as oil prices gave back some recent gains. U.S. crude oil futures settled 0.6% lower at $82.12 a barrel. (Full Story)
Among the sectors that advanced was consumer discretionary with a 1.9% gain. It was led by fashion retailer Aritzia Inc, which ended 18.9% higher after its quarterly results beat estimates.
Financials, the most heavily weighted sector on the TSX, rose 0.4%.
In the U.S., Delta Air Lines closed up 2% at $41.47 after beating estimates for fourth-quarter earnings. Its chief executive also predicted a swift recovery from turbulence caused by the Omicron coronavirus variant, also helping to lift the S&P 1500 Airlines index 2.6% for the day.
Data showed the producer price index (PPI) rose 0.2% last month after advancing 0.8% in November while in the 12 months through December, the PPI rose 9.7% versus the 9.8% forecast of economists polled by Reuters.
“After the heat we’ve seen in PPI in recent months, it is hard to get excited about the first month that surprised to the downside,” said Jim Vogel, senior rates strategist, at FHN Financial at the Reuters Global Markets Forum.
“We cannot trust any apparent moderation in inflation for the next four months. Data is still too noisy to be confident about a pause or less pressure on inventories and supply.”
The PPI figures come a day after Wall Street indexes cheered consumer inflation numbers that hit a 40-year high but largely met market expectations.
Wells Fargo followed Goldman Sachs, JPMorgan and Deutsche Bank in forecasting that the Fed might raise interest rates four times this year.
Declining issues outnumbered advancing ones on the NYSE by a 1.27-to-1 ratio; on Nasdaq, a 2.24-to-1 ratio favored decliners. The S&P 500 posted 44 new 52-week highs and no new lows; the Nasdaq Composite recorded 75 new highs and 360 new lows. On U.S. exchanges 10.43 billion shares changed hands compared with the 10.39 billion average over the last 20 sessions.
Reuters, Globe staff
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