U.S. stocks closed lower Thursday, but the Canadian benchmark index squeaked out a gain, after a choppy session that left investors skeptical that equities have bottomed out in the wake of steep losses one day earlier.
Supply chain woes continued to fuel inflation and growth concerns as Cisco Systems Inc warned of persistent component shortages, knocking its shares down 13.7%.
Kohl’s Corp became the latest large U.S. retailer to flag a hit from four-decades high inflation as the department store chain cut its full-year profit forecast.
Its shares, however, rebounded over 4% after slumping 11% in the previous session due to dismal results from Target Corp.
Big slides for Walmart on Tuesday and Target on Wednesday had investors demoralized and wondering about higher costs across the supply chain, said Michael James, managing director of equity trading at Wedbush Securities.
“You got a pretty severe shock to the system for portfolio managers with the combination of those two,” James said. “That type of damage is hard to repair, piled on top of the extremely challenging year that technology investors have had,” he said.
“On the other hand, you’ll get trading optimists who view things have gotten extremely oversold and with the Nasdaq down 27% coming into today, you’re due for some kind of a bounce.”
Traders are looking for a catalyst that will turn the market around as a near-term bottom approaches, said Rick Meckler, president of hedge fund LibertyView Capital Management LLC.
But, ‘there’s probably still enough fear among investors to see a few more downdrafts,” Meckler said.
Cash hoarding has reached the highest level since September 2001, indicating strong bearish sentiment, according to Louise Dudley, a portfolio manager at Federated Hermes Ltd.
Goldman Sachs estimated on Thursday a 35% probability of a U.S. recession in the next two years, while Morgan Stanley’s sees a 25% chance of one in the next 12 months.
While overall market sentiment remained weak, Canada’s main stock index clawed back some of the previous day’s sharp decline, as shares of energy and gold mining companies got a boost from higher commodity prices.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 80.54 points, or 0.4%, at 20,181.92. On Wednesday, the index fell 1.9%.
Thursday’s advance was led by a gain of 3.1% for the materials group, which includes precious and base metals miners and fertilizer companies.
Gold was up 1.4% at about $1,841 per ounce as a slide in the U.S. dollar and Treasury yields burnished bullion’s safe-haven appeal.
Energy advanced 0.6% as oil prices rebounded after two days of losses, settling 2.4% higher at $112.21 a barrel.
“Recession fears are rising but that impact won’t be felt for quite a while, which means the oil market won’t see imminent crude demand destruction,” said Edward Moya, a senior market analyst at OANDA in New York.
Technology ended 2.7% higher, helped by a gain of 10.1% for Lightspeed Commerce Inc after the company reported quarterly earnings.
Among other advancers was Canada Goose Holdings Inc. It climbed 9% after the company forecast annual earnings and revenue above Wall Street expectations.
Bond prices rose, as yields - which move inversely to prices - moved lower, showing further stabilization after 10-year government notes briefly breached the 3% mark earlier this month.
The 10-year U.S. Treasury yield dropped to 2.772%, the lowest since late April. Since hitting a roughly 3-1/2-year high of 3.203% early last week, the 10-year yield has fallen 43 bps.
The Canadian 10-year touched its lowest since April 28 at 2.830% before recovering to 2.885%, down 6.2 basis points on the day.
Some strategists were skeptical the modest pullback in yields would last.
“I don’t think we have seen a peak in yields yet. We need to see jobs take a hit, or inflation moderates at a faster pace,” said Ellis Phifer, managing director, fixed income research at Raymond James in Memphis, Tennessee.
“We still have a lot of supply chain issues. And we also have issues with China’s zero-COVID policy where they lock down everything, which makes supply chain problems more difficult. It’s hard to think yields are done rising.”
Thursday’s U.S. data, however, did show another weak batch of economic numbers.
Initial jobless claims unexpectedly rose last week, hitting a four-month high of 218,000 for the week ended May 14. The number likely suggested slowing demand for labour amid tightening financial conditions. Continuing claims though were at their lowest since the end of 1969.
U.S. existing home sales also fell to their lowest in nearly two years in April, as house prices jumped to a record high amid a persistent lack of inventory.
Factory output in the U.S. Mid-Atlantic region decelerated far more than expected in May with the business outlook for the six months ahead the weakest in more than 13 years, a regional Federal Reserve bank survey said.
On Wall Street, the S&P 500 consumer staples index fell 2% to its lowest level since December as retail firms face the brunt of rising prices hurting the purchasing power of U.S. consumers.
Twitter climbed 1.2% after Bloomberg reported that company executives told staff that Elon Musk’s $44-billion deal was proceeding as expected and they would not renegotiate the price.
The S&P 500 is down about 18% from its record close on Jan. 3 as investors adjust to strong inflation, geopolitical uncertainty stemming from the war in Ukraine and tightening financial conditions with the U.S. Federal Reserve raising rates.
A close of 20% or more below its January record high would confirm the S&P 500 has been in a bear market since hitting that peak, according to a widely used definition.
The S&P 500 declined 0.58% to end the session at 3,900.79 points.
The Nasdaq declined 0.26% to 11,388.50 points, while the Dow Jones Industrial Average declined 0.75% to 31,253.13 points.
Thursday’s mixed performance followed a drop of over 4% in the S&P 500 on Wednesday, the benchmark’s worst one-day loss since June 2020.
The CBOE volatility index, also known as Wall Street’s fear gauge, fell to 29.5 points on Thursday, after hitting its highest level since May 12 earlier in the session.
Volume on U.S. exchanges was 12.7 billion shares, compared with a 13.4 billion average over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 1.15-to-1 ratio; on Nasdaq, a 1.31-to-1 ratio favored advancers. The S&P 500 posted 1 new 52-week highs and 43 new lows; the Nasdaq Composite recorded 12 new highs and 326 new lows.
The Canadian dollar strengthened to its highest level in two weeks against the U.S. dollar on Thursday as oil prices rose and investors reduced their exposure to the U.S. currency.
The loonie was trading 0.6% higher at 1.2810 to the greenback, or 78.06 U.S. cents, after touching its strongest level since May 5 at 1.2784. On Wednesday, the currency fell 0.6% as Wall Street tumbled.
Reuters, Globe staff
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