S&P/TSX Composite Index down, US stock markets also down in volatile trading

TORONTO — Canadian and U.S. markets were under pressure again on Thursday after the Federal Reserve’s rate decision a day earlier signaled more rate hikes and economic trouble ahead.

TORONTO — Canadian and U.S. markets were under pressure again on Thursday after the Federal Reserve’s rate decision a day earlier signaled more rate hikes and economic trouble ahead.

“Markets continue to absorb the full implications of the Fed’s decision in terms of the outlook for higher interest rates for longer,” said Todd Mattina, chief economist at Mackenzie Investments.

On Wednesday, the US Federal Reserve raised its key interest rate by three-quarters of a percentage point to a target of between 3 and 3.25%, and indicated that it could reach around 4.4% by the end of the year.

At a press conference after the announcement, Fed Chairman Jerome Powell warned that getting inflation under control could mean slower growth, higher unemployment and potentially a recession.

“The chances of a soft landing,” Powell said, “are likely to diminish.”

The stern warning sent bond yields sharply higher on Thursday as investors digested the implications of Powell’s remarks, Mattina said.

“The Fed really acknowledged yesterday that they are willing to pay real costs in terms of output and even jobs in order to get inflation under control. So we are seeing some of that trickle down to markets today, including including stock markets, which are also down today.”

The S&P/TSX Composite Index closed down 181.86 points, or 0.95%, at 19,002.68.

In New York, the Dow Jones Industrial Average closed down 107.10 points at 30,076.68. The S&P 500 index fell 31.94 points to 3,757.99, while the Nasdaq composite fell 153.38 points to 11,066.81.

Growth stocks were particularly under pressure, with the information technology index on the TSX down 2.61%, including Shopify Inc. down 6.26%, while the index for cannabis-intensive healthcare fell 2.17%.

“It’s really tech and growth stocks that are driving the sell off today, as opposed to industrial stocks,” Mattina said. “This makes sense because the most growth-sensitive stocks tend to be sensitive to changes in long-term interest rates, primarily because their future earnings are expected to be long-term.”

The losses were quite large, however, with the S&P/TSX energy index down 1.8% and financials down 0.69%.

Uncertainty over growth prospects has also led to more market swings, Mattina said.

“Volatility in trading days has increased in recent weeks. We’ve seen a lot more volatility in the day, especially in stocks.”

The prospect of higher US rates and weaker growth also put continued pressure on the loonie. The Canadian dollar was trading at 74.18 cents US against 74.64 cents US on Wednesday.

Canada’s currency is falling partly because inflation came in below expectations in the last reading, while in the US it surprised on the upside.

“Inflation trends are starting to diverge between Canada and the United States,” Mattina said. “So the Bank of Canada’s rate hike outlook is starting to look a little less hawkish than that of the Federal Reserve, which faces greater inflationary momentum right now.”

The November crude contract was up 55 cents at US$83.49 per barrel and the October natural gas contract was down 69 cents at US$7.09 per mmBTU.

The December gold contract was up US$5.40 at US$1,681.10 an ounce and the December copper contract was flat at US$3.47 per pound.

This report from The Canadian Press was first published on September 22, 2022.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)

The Canadian Press

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