Canada’s main stock index fell on Monday, with the energy sector pulling back from its highest level in nearly seven years as concerns over demand from major consumer China weighed on the price of oil.
But the S&P 500 rose for a third day, as a sharp climb in shares of Tesla overshadowed weakness in energy and bank stocks, while Russia and Ukraine were poised to hold their first face-to-face peace talks in more than two weeks.
The S&P/TSX composite index ended down 28.11 points, or 0.1%, at 21,977.83.
U.S. crude oil futures settled nearly 7% lower at $105.96 a barrel after China’s financial hub of Shanghai launched a lockdown to curb a surge in COVID-19 infections, prompting renewed fears of demand destruction.
The restrictions “imposed in Shanghai are evidence that the pandemic is not yet over and inevitably, given the implications for global growth, have put oil prices under pressure,” said Russ Mould, director at AJ Bell.
The energy sector, which accounts for 15% of the weighting on the Toronto market, fell 2.4% after it posted on Friday its highest closing level since May 2015.
The TSX materials group, which includes precious and base metals miners and fertilizer companies, lost 1.5%. Gold was down 1.8% at about $1,922 per ounce, pressured by the recent move higher in U.S. Treasury yields and a firmer U.S. dollar.
Cannabis producers gave back some recent gains, contributing to a decline of 4.1% for the TSX health-care sector.
Still, the TSX has advanced 4% in March, putting it on track for its biggest monthly gain since October.
Among the sectors that gained ground on Monday in Toronto was technology. It advanced 1.8%, while the consumer staples group was up 1.1%.
In the U.S. market, electric-car maker Tesla Inc jumped 8.03% and was the biggest boost to the S&P 500 and Nasdaq after saying it will seek investor approval to increase its number of shares to enable a stock split, helping to lift the consumer discretionary index 2.67% as the best-performing sector on the session.
The S&P energy index, off 2.56%, was the worst-performing sector on the session. Exxon Mobil Corp lost 2.81% and Chevron Corp fell 1.75%.
Financials were also among the weaker sectors on the session, due in part to a Morgan Stanley downgrade on U.S. banks, which cited escalating risks and the likelihood that rate hikes by the Federal Reserve have already been priced in by the market. The S&P bank index shed 0.99%.
The sell-off in the U.S. bond market resumed on Monday, with short-dated yields hitting their highest since 2019 and the yield curve as measured by the gap between five- and 30-year yields briefly inverted for the first time since early 2006, raising concerns the Federal Reserve’s more aggressive monetary policy will dent economic growth and potentially cause a recession.
“A lot of people bought [financials] or own those on the basis of these will do better in a higher rate environment so I’m not surprised to see the financials back off relative to what is going on in the bond market,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
“Of course commodity names have rallied so high and so hot that it is not surprising to see those names back off, that is kind of what led the market down, but I still think the news for most of these commodity companies will be very, very good.”
Investors pay closer attention to the U.S. 2/10 year yield curve for recession signals, but the 5/30 inversion has increased the chances of the former inverting as well.
The U.S. 2s/10s yield curve was last at 12.7 basis points , the flattest since March 2020.
The 2/10 inversions have preceded the last eight recessions, including 10 of the last 13, according to BoFA Securities in a research note.
U.S. 2-year yields, which are closely tied to the Federal Reserve’s rate outlook, soared, rising to their strongest level since mid-April 2019. They were last up 2.7 basis points at 2.3256%.
Yields on longer-dated maturities, on the other hand, such as those U.S. 10-year notes and 30-year bonds declined.
Canada’s five-year bond yield, which is highly influential on fixed mortgage rates, hit an 11-year high of 2.627% before falling later in the session.
The Dow Jones Industrial Average rose 94.65 points, or 0.27%, to 34,955.89, the S&P 500 gained 32.46 points, or 0.71%, to 4,575.52 and the Nasdaq Composite added 185.60 points, or 1.31%, to 14,354.90.
The S&P was able to rebound from declines earlier in the session, with the benchmark index falling as much as 0.6% at one point.
Strong economic data and gains in beaten-down growth stocks have helped Wall Street’s main indexes recover in recent days even as the conflict between Russia and Ukraine continues and a host of Federal Reserve policymakers have made hawkish comments about the path of interest rate hikes.
Still, analysts noted that value stocks remain cheap relative to their growth counterparts.
Meanwhile, Ukraine and Russia said their delegations would arrive in Turkey for peace talks that are expected to take place on Tuesday. A senior U.S. official said Russian President Vladimir Putin did not appear ready to make compromises, with Ukrainian officials also playing down the chances of a major breakthrough at the talks.
Poly soared 52.63% after HP Inc said it would buy the audio and video products maker for $1.7 billion in cash. Shares of HP declined 2.74%.
Volume on U.S. exchanges was 11.23 billion shares, compared with the 14.09 billion average for the full session over the last 20 trading days.
Declining issues outnumbered advancing ones on the NYSE by a 1.06-to-1 ratio; on Nasdaq, a 1.08-to-1 ratio favored decliners.
The S&P 500 posted 35 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 48 new highs and 107 new lows.
Reuters, Globe staff
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