Canada’s main stock index fell to a near four-week low on Wednesday, with the resource and interest rate-sensitive sectors leading a broad-based sell-off as investors grew less optimistic of an early rate cut by the Federal Reserve. U.S. stocks also lost ground, but losses were less sharp.
The S&P/TSX composite index ended down 253.07 points, or 1.2%, at 20,695.02, its biggest decline since Oct. 18 and its lowest closing level since Dec. 20.
“Clearly, the market is recalibrating its expectations as to when rate cuts are likely to happen, and that’s putting some pressure obviously on equities,” said Mike Archibald, vice president and portfolio manager at AGF Investments.
Bond yields rose after upbeat U.S. retail sales data eroded expectations the Fed will kick off its interest rate cutting campaign as soon as March. By late afternoon, the U.S. two-year bond yield was up 13 basis points to its highest in a week, while the Canada two-year was up an even larger 18 basis points.
Traders’ expectations of a 25-basis-point Fed rate cut in March dipped to 55%, from around 60% before the data was released. Overnight swaps markets for Canada, which capture bets for where monetary policy is heading and are influenced by both domestic and U.S. economic data, now suggest 58% odds that the first cut by the Bank of Canada will arrive in April. At the start of this week, those odds stood at 87%.
U.S. stocks in recent weeks have relinquished some gains from a strong final two months of 2023.
“People’s positions are moderating from ‘all positive’ to ‘there’s still a lot of uncertainty out there,’” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta.
He cited Fed officials who have recently downplayed expectations of a quick start to rate cuts, and mixed economic data.
The CBOE Market Volatility Index, a market fear gauge, rose to an over two-month high of 15.40 points during the day.
U.S. economic activity was little changed from December through early January, while firms reported pricing pressures were mixed and nearly all cited signs of a cooling labour market, the Fed said in its “Beige Book” report on Wednesday.
All 10 major sectors on the Toronto market lost ground, including deep declines for stocks that pay high dividends and could particularly benefit from rate cuts. The utilities group lost 1.9% and real estate was down 2.3%.
The energy and materials sectors fell 1.4% and 2.4% respectively as disappointing economic growth in China spurred concerns about the demand outlook for commodities.
The price of oil settled 0.2% higher at US$72.56 a barrel but copper fell and gold slid on a stronger U.S. dollar.
The S&P 500 declined 0.56% to end at 4,739.21 points, its lowest level in a week. The S&P 500 remains down about 1% from its record high close in January 2022.
Amazon, Nvidia and Alphabet dipped between 0.5% and 1% and weighed on the S&P 500.
Tesla dropped 2% after the electric-vehicle maker slashed prices of its Model Y cars in Germany a week after reducing prices for some China models.
The interest rate-sensitive S&P 500 real estate sector index tumbled 1.9%.
Morgan Stanley fell 1.8% after analysts cut their ratings and price targets in the wake of the bank’s fourth-quarter earnings. Bank of America and Citigroup each lost about 1%.
The Nasdaq fell 0.59% to 14,855.62 points, while Dow Jones Industrial Average slid 0.25% to 37,266.67 points.
The small-cap Russell 2000 index dropped 0.7% and closed at its lowest in over a month.
Charles Schwab dropped 1.3% after its fourth-quarter profit fell 47%.
Spirit Airlines tumbled 22%, down sharply for a second day after a U.S. judge on Tuesday blocked JetBlue from acquiring the carrier.
Ford Motor declined 1.7% after UBS downgraded the stock to “neutral” from “buy.”
Boeing gained 1.3% after the Federal Aviation Administration said inspections of an initial group of 737 MAX 9 airplanes had been completed.
Declining stocks outnumbered rising ones within the S&P 500 by a 4.0-to-one ratio. The S&P 500 posted 24 new highs and five new lows; the Nasdaq recorded 47 new highs and 219 new lows. Volume on U.S. exchanges was relatively light, with 11.8 billion shares traded, compared to an average of 11.9 billion shares over the previous 20 sessions.
Reuters, Globe staff