TORONTO – Canadian and U.S. markets came under renewed pressure on Thursday after the Federal Reserve’s interest rate decision a day earlier hinted at further rate hikes and economic woes.
“Markets continue to absorb the full impact of the Fed’s decision on the prospect for longer-term higher interest rates,” said Todd Mattina, chief economist at Mackenzie Investments.
On Wednesday, the US Federal Reserve raised interest rates by three-quarters of a percentage point to a target of between 3 and 3.25 percent and indicated it could rise to around 4.4 percent by the end of the year.
In a press conference following the announcement, Fed Chair Jerome Powell warned that taming inflation could mean slower growth, higher unemployment and a possible recession.
“The chances of a soft landing,” Powell said, “are likely to decrease.”
The stark warning sent bond yields a sharp boost Thursday as investors digested the implications of Powell’s comments, Mattina said.
“The Fed really acknowledged yesterday that it is willing to pay real costs in terms of output and even jobs to get inflation under control again. So we’re seeing some of that feeding through to markets today, including equity markets, which are also down today.”
The S&P/TSX composite index closed up 181.86 points, or 0.95 percent, at 19,002.68.
In New York, the Dow Jones Industrial Average closed up 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 percent, including Shopify Inc. down 6.26 percent, while the cannabis-heavy healthcare index was down 2.17 percent.
“It’s really technology and growth stocks that are driving the sell-off today, as opposed to industrials,” Mattina said. “That kind of makes sense because the more growth-sensitive stocks tend to be sensitive to changes in long-term interest rates, largely because their future earnings are expected over the long term.”
Losses were fairly broad, however, with the S&P/TSX energy index down 1.8 percent and financials down 0.69 percent.
Meanwhile, the uncertainty weighing on growth prospects has also led to more market volatility, Mattina said.
“Intra-day volatility has increased in recent weeks. We’ve seen a lot more volatility throughout the day, particularly in stocks.”
The prospect of rising interest rates in the US and slower growth also put further pressure on the madman. The Canadian dollar was trading at 74.18 US cents on Wednesday, compared to 74.64 US cents.
Canada’s currency is falling in part as inflation has recently come in below expectations, while in the US it surprised on the upside.
“Inflation trends between Canada and the US are starting to diverge,” Mattina said. “So the outlook for Bank of Canada rate hikes looks a little less dovish than the Federal Reserve, which is currently facing higher inflation dynamics.”
The November crude oil contract rose 55 cents to $83.49 a barrel and the October natural gas contract fell 69 cents to $7.09 a mmBTU.
The December gold contract rose $5.40 to $1,681.10 an ounce and the December copper contract was flat at $3.47 a pound.
This report from The Canadian Press was first published on September 22, 2022.
Company in this story: (TSX:GSPTSE, TSX:CADUSD=X)
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