TORONTO – Rising fears over future economic growth weighed heavily on markets on Friday, pushing Canada’s main stock index sharply lower along with the commodities that underpin so much of it, while US markets also fell.
TORONTO – Rising fears over future economic growth weighed heavily on markets on Friday, pushing Canada’s main stock index sharply lower along with the commodities that underpin so much of it, while US markets also fell.
The S&P/TSX composite index closed 521.70 points, or 2.75 percent, lower at 18,480.98 in broad-based declines led by the energy sector, while U.S. markets were down about 1.7 percent on worries of the Investors reached new heights via rising interest rates.
“The Fed and other central banks have made no bones about it, they want to tighten policy and put it under restrictive conditions,” said Steve Locke, chief investment officer for fixed income and multi-asset strategies at Mackenzie Investments.
Friday’s drop comes after the US Federal Reserve raised interest rates by three-quarters of a percentage point on Wednesday and warned of more interest rates, a move that, combined with rising interest rates elsewhere, will increase concerns about the rapid rise affecting the economy .
“It’s really an accumulation of monetary policy effects as central banks around the world tighten policies in the face of the inflationary tide,” Locke said.
Markets have felt the squeeze since August, when Fed Chair Jerome Powell announced his determination to fight inflation after the Jackson Hole summit.
The S&P/TSX Composite Index is down nearly 1,800 points since mid-August and is now nearing this year’s closing low of 18,329.10, posted July 14.
In New York, the Dow Jones Industrial Average closed down 486.27 points, or 1.6 percent, at 29,590.41, hitting a new yearly low. The S&P 500 index fell 64.76 points, or 1.7 percent, to 3,693.23, while the Nasdaq Composite fell 198.88 points, or 1.8 percent, to 10,867.93, both with lows hit during the summer of 2022 were approaching.
Concerns about economic growth also weighed on commodities on Friday over the potential for weaker demand, Locke said.
“There is a greater likelihood of a faster slowdown and possibly an imminent recession. And when that happens, what we usually see is that commodity prices tend to trend a bit lower in general, as weakening aggregate demand impacts demand for those basic commodities. “
The November crude oil contract fell $4.75 to $78.74 a barrel and the November gas contract fell 20 cents to $6.99 a mmBTU.
The December gold contract fell $25.50 to $1,655.60 an ounce and the December copper contract fell 13 cents to $3.34 a pound.
Falling energy and metals prices dragged the S&P/TSX energy index down 7.8 percent, while big names like Suncor Energy Inc. lost 9.26 percent and Cenovus Energy Inc. 8.93 percent.
The base metals index fell 5.3 percent, while financials fell 1.9 percent and industrials 1.4 percent.
Rising interest rates in the US and economic fears elsewhere have also given the US dollar a big boost.
It posted large gains against the British pound after the government proposed a hugely expensive tax cut package, while it continues to gain against the Canadian dollar as investors worry about how hard rising interest rates will hit the Canadian economy.
“Markets are beginning to anticipate that the very interest rate-sensitive Canadian economy could slow down a little faster under the pressure of these higher yields,” Locke said.
On Friday, the Canadian dollar was trading at 73.69 US cents, compared to 74.18 US cents on Thursday.
And while rising rates are wreaking havoc in many markets, they offer savers options because a significant portion of future rate hikes have been priced into fixed-income rates, Locke said.
“That likely offers investors looking for a safe alternative to add to their portfolio some potential to add higher-quality fixed income securities to their portfolios at returns they haven’t seen in over a decade.”
This report from The Canadian Press was first published on September 23, 2022.
Company in this story: (TSX:GSPTSE, TSX:CADUSD=X)
The Canadian Press
